A Consultation on Tax Management

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First published by the Scottish Government, December 2012
ISBN: 978-1-78256-273-3 (web only)

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ISBN 978-1-78256-274-0 (ePub)

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The Scottish Government
St Andrew’s House
Edinburgh
EH1 3DG

Produced for the Scottish Government by APS Group Scotland
DPPAS13706 (12/12)

Published by the Scottish Government, December 2012

Contents

Foreword from the Cabinet Secretary
Chapter 1: Introduction and Context
Chapter 2: Revenue Scotland
Chapter 3: Powers and Obligations
Chapter 4: Ensuring Tax Compliance
Chapter 5: Tackling Tax Avoidance
Chapter 6: Resolving Tax Disputes
Chapter 7: Treatment of Taxpayer Information
Chapter 8: Accelerated Tax Changes
Chapter 9: How to Respond
Appendix 1: Respondent Information Form
Appendix 2: Draft Partial Equality Impact Assessment
Appendix 3: Draft Partial Business Regulatory Impact Assessment
Appendix 4: Glossary of Terms
Appendix 5: Summary of Consultation Questions

Foreword

This consultation on tax management arrangements is another important step forward in securing and using effectively a wider range of financial powers for Scotland. We have already consulted on our proposals for a Land and Buildings Transaction Tax (LBTT) to replace the UK Stamp Duty Land Tax from 2015. We have now introduced a landmark Bill to the Parliament proposing the legislation needed to operate LBTT. We are currently consulting on a Scottish Landfill Tax, and will introduce a Bill in Spring 2013. This consultation on tax management builds on that momentum. It asks for comments on our proposals for a tax administration framework aimed at ensuring that taxes over which we have control in Scotland will be operated efficiently, fairly and in the public interest.

Existing UK powers used by Her Majesty's Revenue and Customs to collect non-devolved taxes will not be available to support the devolved taxes in Scotland. We therefore need to establish our own Scottish arrangements and powers. This gives us an important opportunity to simplify and improve the existing complex set of tax arrangements. We can also lay a sound foundation for a wider range of taxes as Scotland's financial responsibilities increase in future. And we can set out a distinctive Scottish approach to the important issue of administering tax. Our aim is to use the opportunity to achieve these objectives. Responses to this consultation will help us do so.

Establishing LBTT and a Scottish Landfill Tax will enable us to demonstrate that Scotland is able to set, administer and collect taxes effectively and efficiently. This further consultation seeks views on how the new Scottish tax authority, Revenue Scotland, should be structured and what its powers and duties should be. By 2015, in line with international best practice, we intend that Revenue Scotland will be placed on a footing that ensures its operational independence from Scottish Ministers, with its governance and structure established through legislation.

The consultation also covers arrangements for encouraging tax compliance and for tackling tax avoidance - both issues of current concern in Scotland and across the UK. And we are seeking views on how best to deal with tax disputes, including the option of using mediation to reduce reliance on the tribunals and courts. Further chapters explore appropriate management of taxpayer information and accelerated tax changes.

The Scottish Government believes that getting the devolved taxes right, including setting up Revenue Scotland, is a first significant step on the way to much greater financial self-determination for Scotland. The new powers in the Scotland Act 2012 ("the 2012 Act"), while modest, are welcome as practical, tangible progress towards demonstrating that taxes paid in Scotland are best managed and set by those with Scotland's interests in mind. But we think there is much further to go - all taxes paid in Scotland should in our view also be set and collected in Scotland, and subject to Parliamentary and other scrutiny that ensures Scotland's best interests are being served.

We also welcome the opportunity to establish a Scottish approach to the principles of taxation, and to a Scottish tax collection system. This will enable people in Scotland to judge for themselves the benefits of the Scottish Parliament having responsibility for these issues.

This consultation runs for a full four months, longer than usual, in recognition of the important and complex issues covered. We will analyse carefully and thoroughly the comments and suggestions we receive and in the light of these will bring forward for Parliamentary scrutiny a Tax Management Bill. This will establish Revenue Scotland in statute and give the body the powers and responsibilities it needs to function effectively on behalf of everyone in Scotland.

The people of Scotland will have a further opportunity to comment on our proposals when the Committee of the Scottish Parliament responsible for scrutinising the proposed Bill calls for evidence from the public. This will provide a further important opportunity for principles and approaches to be debated. We believe that an inclusive approach will help to reach a common view on important issues about how taxation should be managed and run in Scotland.

I encourage people and organisations to respond to this invitation to comment. During the consultation period we will be keen to discuss the issues raised here with those who have an interest. The consultation website is designed to make it as easy as possible for comments to be lodged electronically, and we are also happy to accept responses in other forms.

John Swinney
Cabinet Secretary for Finance, Employment and Sustainable Growth

Chapter 1: Introduction and context

Chapter summary

- The Scottish Parliament will have new financial powers to introduce and administer taxes on land and property transactions and on disposals to landfill. The Scottish Government proposes to bring forward taxes to replace the UK Stamp Duty Land Tax (SDLT) and Landfill Tax, which will cease to apply in Scotland from 1 April 2015.

- We have already consulted on the Land and Buildings Transaction Tax (LBTT) (published June 2012) and are consulting on a tax on disposals to landfill (published October 2012). This consultation is the third of the sequence dealing with these devolved tax powers.

- This consultation is about the general tax management arrangements, covering issues that apply to LBTT and Scottish Landfill Tax and also any future devolved taxes. After considering the results of this consultation, we will bring forward a Tax Management Bill, which will contain the underpinning arrangements that will apply for all devolved taxes.

- In his statement to the Scottish Parliament on 7 June 2012, the Cabinet Secretary for Finance, Employment and Sustainable Growth announced that the Scottish Government intended to establish Revenue Scotland as the Tax Authority for Scotland's devolved taxes, and that Registers of Scotland (RoS) and the Scottish Environment Protection Agency (SEPA) would be responsible for collecting LBTT and Scottish Landfill Tax.

- This consultation asks questions about the governance and structure of Revenue Scotland, its powers, ensuring tax compliance, tackling tax avoidance, resolving tax disputes, treatment of taxpayer information, and accelerated tax changes.

- The proposals set out in this consultation paper are rooted in the vision for the Scottish Government's approach to tax, articulated in the statement to the Scottish Parliament on 7 June 2012.

- This is based on four governing principles:

- Proportionate to ability to pay;

- Certainty;

- Convenience; and

- Efficiency.

- The Scottish approach will be tailored to the requirements of Scots law and practice and will be characterised by a strong focus on public engagement with taxpayers and tax professionals.

- The Scottish Government will consider its proposals for a Tax Management Bill in the light of responses to this consultation, and intends to introduce a Bill for the Scottish Parliament's consideration in Autumn 2013. It will consult further on guidance and other matters to be included in subordinate legislation such as the framework for statutory penalties in due course.

- The term "devolved taxes" is used as in the Scotland Act 2012 to mean those taxes for which the Scottish Parliament is empowered to legislate as a consequence of the 2012 Act. Further taxes may be devolved or introduced in future without the need for primary legislation at Westminster subject to the agreement of the UK and Scottish Parliaments. The term does not include Business (Non-Domestic) Rates or Council Tax, nor the Scottish rate of income tax.

The Scotland Act

1.1 The Scotland Act 2012 ('the 2012 Act') received Royal Assent on 1 May and amends the Scotland Act 1998 to give the Scottish Parliament new powers over taxation and borrowing. The main changes are as follows:

- The Scottish Parliament will have the power to introduce and set a tax on land transactions and on disposals to landfill. These are referred to as the two devolved taxes and they are expected to take effect from April 2015. Further taxes may be devolved or introduced in future without the need for primary legislation at Westminster subject to the agreement of the UK and Scottish parliaments;

- Two existing UK taxes - Stamp Duty Land Tax (SDLT) and Landfill Tax - will no longer apply in Scotland once the two devolved taxes take effect (subject to transitional rules). At present, SDLT raises around £330 million a year in Scotland and Landfill Tax about £100m;

- From April 2015, the Scottish Government will for the first time be able to borrow money within certain limits; and

- From April 2016, the Scottish Parliament will be asked to set a Scottish rate of income tax (SRIT), to replace a 10p in the pound reduction in UK Income Tax for Scottish taxpayers across all tax bands. SRIT will remain part of the UK Income Tax system and continue to be administered by HM Revenue and Customs (HMRC). At present, it is estimated that a 10p rate of SRIT would raise about £4,500 million a year.

1.2 The UK Government will reduce the block grant paid to Scotland to offset the expected income from the two devolved taxes and from SRIT. The two governments have agreed in principle how the block grant adjustments will operate, although some detailed elements remain to be settled. It is expected that the effect on the Scottish budget will remain neutral in the first year of operation. Thereafter, the Scottish budget may move above or below the level it would have reached in the absence of the changes. The budget would move above this "no change" level if receipts from SRIT and / or the devolved taxes exceed the amount of the block grant adjustments. It would move below that level if tax receipts are lower than the amount of the block grant adjustments. Nothing in this consultation paper, nor in the proposed Tax Management Bill, will affect the amount of the block grant adjustments.

Implications of the changes: the vision for tax in Scotland

1.3 Scottish Ministers have indicated that they will bring forward devolved taxes to replace the UK taxes that will no longer apply. This will enable the overall spending power of the Scottish Government to remain broadly as it would have been before the changes. In his statement to the Scottish Parliament on tax of 7 June 2012, the Cabinet Secretary for Finance, Employment and Sustainable Growth confirmed that the Scottish Government would consult on and bring forward three pieces of legislation to introduce and implement the first two devolved taxes: a Land and Buildings Transaction Tax (LBTT) Bill, a Scottish Landfill Tax Bill and a Tax Management Bill.

1.4 In the 7 June statement the Cabinet Secretary also articulated his vision for the Scottish Government's approach to taxation. He emphasised four governing principles that are at the heart of the proposals put forward in this consultation paper and in the consultations on the two devolved taxes. These principles, grounded in Adam Smith's Four Maxims, are:

Proportionate to ability to pay: the burden of taxation should be borne by those most able to afford it;

Certainty: taxpayers should be clear about the tax due, their legal obligations and the consequences of their actions; taxpayers should know that Revenue Scotland will be active in promoting a culture of tax compliance and tackling tax avoidance, all to the benefit of the compliant taxpayer;

Convenience for the taxpayer: it should be as simple as possible for the taxpayer to calculate and pay the tax due; and

Efficiency: the cost of administering tax should be as low as possible to avoid diverting resources from other public priorities and to minimise costs to the taxpayer.

1.5 The Cabinet Secretary also confirmed his intention that a Scottish system should meet the distinctive needs of Scotland, including better alignment with Scots law and practice. He also announced his intention to establish Revenue Scotland to administer the devolved taxes from 2015 with the aspiration that, in time, it would oversee the administration of all taxation in Scotland. He confirmed that Registers of Scotland (RoS) and the Scottish Environment Protection Agency (SEPA) would work with Revenue Scotland, collecting LBTT and Scottish Landfill Tax, respectively.

1.6 Additionally, the Cabinet Secretary emphasised the importance that the Scottish Government attaches to proactive engagement with stakeholders, committing to chairing a six-monthly Tax Consultation Forum and to ensuring the continued engagement with the broader community of those interested in tax legislation and administration.

1.7 This is the vision of taxation that we are seeking to deliver in Scotland via the three legislative instruments that will be introduced prior to 2015: the LBBT Bill introduced on 29 November 2012, the Scottish Landfill Tax Bill that we expect to introduce in Spring 2013, and the proposed Tax Management Bill. It is the vision that has shaped the proposals set out in this Tax Management consultation.

Rationale for a Tax Management Bill

1.8 As set out above, the 2012 Act gives the Scottish Parliament legislative competence over devolved areas of taxation, and defines these as being taxes on transfers of interests in land, and taxes on disposals to landfill. We have brought forward specific legislative proposals for LBTT to replace SDLT, and intend to bring forward a Bill to establish Scottish Landfill Tax to replace UK Landfill Tax. However, we also need to bring forward proposals to support the systems that are required for the effective implementation of this legislation.

1.9 The proposed Tax Management Bill will bring together all of the arrangements necessary to ensure that these new taxation responsibilities can be discharged effectively. The Tax Management Bill will not address issues specific to individual taxes. Rather, it seeks to focus on elements of a system that are common to both of the devolved taxes and potentially to others that may be devolved in time. It is based on the premise that management arrangements should be common to any taxes introduced unless there is a clear reason for difference. In preparing the draft LBTT legislation, we have also made reference to some of these differences where this has seemed sensible and appropriate for the purposes of legislative coherence. The more substantive discussion is contained within this paper, although in our analysis, we will ensure that we cross-refer to responses to the other consultations for a holistic overview. We will also ensure that the resultant pieces of legislation are appropriately dovetailed.

1.10 It is intended that the scope of the Tax Management Bill ("the Bill") will cover all of the aspects discussed in this consultation. The key issues for inclusion in the Bill are as follows:

- The structure, scope and responsibilities of Revenue Scotland;

- Powers of Revenue Scotland staff and obligations of and safeguards for taxpayers;

- Encouraging tax compliance;

- Tackling tax avoidance;

- Resolving tax disputes;

- Handling taxpayer information; and

- Accelerated collection of taxes.

1.11 There are international precedents for putting provisions on these lines into a single piece of legislation. For example, in the Republic of Ireland, the principal legislation for tax management is the Taxes Consolidation Act 1997; in New Zealand, both tax management and the governance of the New Zealand Inland Revenue Department are set out in the Tax Administration Act 1994.

1.12 A further benefit of a single Tax Management Act is that it places all the relevant tax management and administration provisions in one piece of legislation. This will make accessing the relevant legislation easier for taxpayers, their agents, the staff of Revenue Scotland and the bodies to which it delegates powers. We believe that this will make it easier to understand and work with the system of taxation in Scotland. Overall, this gives us an excellent opportunity to develop the coherent and integrated approach that is right for Scotland. We are keen to seek your views on these important and relevant issues.

Key assumptions underpinning this Tax Management Consultation

1.13 There are a number of key assumptions underlying this consultation, which we consider it helpful to set out clearly in advance of the more detailed discussion in the following chapters:

- We consider it essential that Revenue Scotland and the bodies to which it delegates power should administer tax efficiently, effectively and with a high degree of probity. The proposals that we have put forward are intended to support this aim.

- We consider that the tax management provisions should be common to all taxes introduced unless there is a clear rationale for the requirement for additional provisions; the system envisaged remains a system based primarily upon self-assessment, under which the taxpayer will be required to provide or make arrangements for provision of a return to Revenue Scotland, or its delegated agent in the format stipulated by Revenue Scotland declaring what he/she considers the tax due to be and providing the relevant information within a designated period.

- We believe that it is important for tax due to be paid. We propose to be rigorous in our pursuit of tax evasion and tax avoidance and this is discussed in detail in chapters 4 and 5.

- We have set out in this document our intention to work within, and indeed to exemplify, the Digital First approach to which the Scottish Government and the wider Scottish public sector are committed. This means that we will prioritise making information and systems available on-line and will be aiming to ensure that the on-line service is an exemplar of the new approach: so good that taxpayers will choose to use it over other mechanisms. However, we recognise that some taxpayers will require additional support and we are seeking your views on what additional needs there may be and how best to meet these.

- In line with our principle of convenience, we recognise that we need to make it as easy as possible for taxpayers to comply with their obligations and we are keen to reduce the burden on the individual and on business, while maintaining effective and efficient tax administration. Specifically, we are aware that many businesses, individuals and agents will interact with both Revenue Scotland and HMRC and we will be keen to work with HMRC to explore how to ensure that the experience for the taxpayer and his/her agent is made as smooth as possible.

- We also recognise that many taxpayers will choose to appoint agents to act on their behalf. Revenue Scotland must therefore have systems and processes to enable engagement with agents as well as with taxpayers. We are keen to seek views on how engagement with agents should operate.

1.14 The term "devolved taxes" is used in this document in the same way as it is used in the 2012 Act to mean those taxes for which the Scottish Parliament is empowered to legislate as a consequence of the 2012 Act - that is, taxes on transfers of interests in land, and taxes on disposals to landfill. Further taxes may be devolved in future without the need for primary legislation at Westminster subject to the agreement of the UK and Scottish parliaments. The term does not include Business (Non-Domestic) Rates, Council Tax, nor SRIT.

Consultation Arrangements and Timetable

1.15 We have already consulted on arrangements for LBTT (June to September 2012). An LBTT Bill was introduced in the Scottish Parliament on 29 November 2012. A consultation on arrangements for Scottish Landfill Tax was issued on 25 October 2012 and will close on 15 January 2013.

1.16 Paragraph 1.10 lists the areas discussed in this document. Tax administration will affect most people at some point in their lives, so although some of the issues are rather technical, we would welcome views from all who wish to respond to the consultation. The consultation is likely to be particularly relevant to those with an interest in tax administration, courts and tribunals; Scots law and practice; democratic oversight; tackling tax avoidance; and balancing a tax authority's powers with taxpayer rights. We have included a number of questions throughout this paper. For convenience, a full list of the consultation questions is available at the end of the document on page 80.

1.17 The timetable currently envisaged for the rest of the consultation and legislation on devolved taxes is set out below paragraph 1.19. In recognition of the volume, scope and complexity of issues contained within this paper, we propose to extend the duration of this consultation to four months rather than the usual three. During the consultation period we will be keen to discuss the issues raised in the consultation paper with all those who have an interest. We intend to consult further on the detail of the statutory framework for penalties, on guidance, and on appropriate administrative arrangements including handling of investigations in due course.

Next Steps

1.18 The Scottish Government will consider its proposals for a Tax Management Bill including the structure and role of Revenue Scotland in the light of the responses to this consultation. We propose to introduce a Bill for the Scottish Parliament's consideration in Autumn 2013.

1.19 There will be a further opportunity for stakeholders to contribute their views on both these proposals and the Bill itself when the lead committee of the Scottish Parliament issues a call for written evidence following the introduction of the Bill in Autumn 2013. The lead committee may also issue invitations for oral evidence to be provided at committee sessions to discuss the details of the Bill. Further details on the Bill process can be found on the Scottish Parliament website at: http://www.scottish.parliament.uk/parliamentarybusiness/Bills.aspx

Outline Timetable for Consultation and Legislation

Chapter 2: Revenue Scotland

Chapter summary

- We propose that the Tax Authority for Scotland's devolved taxes, Revenue Scotland, be created as a Non-Ministerial Department, and staffed by civil servants. This would make Revenue Scotland a separate part of the Scottish Administration (but not part of the Scottish Government). It would be accountable to the Scottish Parliament rather than Ministers.

- We propose that the principal function of Revenue Scotland should be "to ensure the efficient and effective care and management of the devolved taxes and that all tax receipts are paid to the Scottish Consolidated Fund", and we set out at paragraph 2.4 a range of duties that we propose should be placed on Revenue Scotland.

- Views are invited on the senior leadership structure of Revenue Scotland including to what extent this should include non-executive members. Views are also invited on who should have a role in selecting the most senior staff.

- We recognise that public engagement and communication with taxpayers, taxpayers' designated agents and the community of tax professionals will be important roles for Revenue Scotland and we invite your views on appropriate means of engagement.

The context for establishing Revenue Scotland

2.1 In his statement to the Scottish Parliament on tax on 7 June 2012, the Cabinet Secretary for Finance, Employment and Sustainable Growth announced his intention to establish Revenue Scotland as the Tax Authority responsible for the care and management of Scotland's devolved taxes.

"We will establish a tax administration function for assessing and collecting both taxes here in Scotland. This function, which I propose to name Revenue Scotland, will be established this year. By 2015, in line with international best practice, it will be operationally independent and its governance enshrined in legislation.

This will enable people in Scotland to judge for themselves the benefit of the Scottish Parliament having responsibility for these issues and will ensure the will of Parliament is delivered.

Revenue Scotland will offer an innovative approach to the collection of taxation. It will work with two firmly established and highly respected organisations: Registers of Scotland to administer the new land and property tax and SEPA to administer disposals to landfill. These partnerships will offer further opportunities for us to customise tax collection arrangements that are specific to the Scottish situation, drawing on the relevant knowledge and expertise within RoS and SEPA to eradicate duplication and deliver greater simplicity.…

Through Revenue Scotland we will serve the needs of the people of Scotland at a lower cost than the UK set up and we will deliver a better system more in line with Scotland's needs.

In due course, Revenue Scotland will oversee the administration of the full range of taxes set by Scottish Ministers. It will become the focus of the expertise in tax administration that we will grow in Scotland."

John Swinney MSP, Cabinet Secretary for Finance, Employment and Sustainable Growth

7 June 2012

Purpose and function

2.2 The purpose of establishing Revenue Scotland is to ensure that the revenue from Scotland's devolved taxes will be collected and made available to fund public services in Scotland. Revenue Scotland will be expected to carry out this purpose efficiently and effectively and in accordance with high standards of propriety, integrity and transparency.

2.3 We propose the following principal function for Revenue Scotland:

"to ensure the efficient and effective care and management of the devolved taxes and that tax receipts are paid to the Scottish Consolidated Fund".

Duties

2.4 We also propose to set out a core set of duties on Revenue Scotland to enable it to carry out its core function effectively, efficiently and even-handedly. These are additional to the generic duties that apply to all public bodies in Scotland, which include adhering to Equalities law and to the rules set out in the Scottish Public Finance Manual (SPFM). The specific duties we propose are:

- to administer the devolved taxes, collecting the highest net revenue practicable, while exercising appropriate discretion over cases of exceptional hardship or where further pursuit of unpaid tax would not be in the public interest;

- to provide information and guidance to taxpayers and their appointed agents about the Scottish approach to tax, about taxpayers' obligations, and about the processes to be followed;

- to work with taxpayers to resolve disputes about tax as efficiently as possible;

- to identify cases of potential fraud or other criminal activity and, working as appropriate with other public bodies, to ensure that these are reported to the Crown Office and Procurator Fiscal Service in relevant cases;

- to provide information and advice, including policy advice, about the administration of tax to the Scottish Government and the Scottish Parliament, including providing forecasts of tax receipts and information on achieving targets;

- to have regard to relevant guidance issued by Scottish Ministers and, from time to time, to agree with Ministers a corporate plan setting the strategy for Revenue Scotland; and

- to fulfil all relevant EU and international obligations; liaising with other revenue authorities, in particular, HMRC, on behalf of the Scottish Government.

Q1 What are your views on the proposed function and duties of Revenue Scotland?

Accountability and legal status

2.5 Tax collection is an essential function of the state: tax revenue is what primarily funds public services. International good practice suggests that it is important for a tax authority to be operationally independent of Ministers while maintaining close working relationships with the tax policy and budgeting functions of government. This helps ensure that Ministers are able to set appropriate targets, for example for tax collection costs and for timely collection of tax due, while remaining entirely separate from all operational issues such as administering taxpayers' information and the handling of individual cases. On such matters, Revenue Scotland would be accountable through its governance structure, options for which are discussed below, to the Scottish Parliament. We expect that Revenue Scotland would come within the scope of the Auditor General for Scotland for purposes of audit and scrutiny.

2.6 We have considered what governance, oversight and leadership arrangements would best give effect to this overall intention. Options include establishing Revenue Scotland as a core part of the Scottish Government, an Executive Agency, a Non-Departmental Public Body or a Non-Ministerial Department. We have examined models of how tax administrations work across the world including in the UK, Ireland and New Zealand. There is no single universally-accepted model. However, we note that there are common features which recur, particularly across the Commonwealth.

2.7 We propose that Revenue Scotland should become a Non-Ministerial Department within the Scottish Administration and accountable to the Scottish Parliament, because this option provides operational independence while retaining the organisation as part of the Scottish Administration[1] (but not as a constituent part of the Scottish Government). Staff of Non-Ministerial Departments are civil servants and this offers a useful flexibility, enabling staff to transfer between Revenue Scotland, the core Scottish Government and other Non-Ministerial Departments. This is likely to be particularly important in view of the relatively small number of staff Revenue Scotland will require to discharge its initial responsibilities for the devolved taxes.

2.8 The Scottish Government therefore intends to legislate in the Tax Management Bill for the establishment of Revenue Scotland as a Non-Ministerial Department and part of the Scottish Administration. However, we would welcome comments or suggestions about any other arrangements you believe would be more appropriate.

Q2 What are your views on the proposal to establish Revenue Scotland as a Non-Ministerial Department, part of the Scottish Administration and accountable to the Scottish Parliament?

Leadership and governance

2.9 Internationally, governments use a range of models for the oversight and governance of a tax authority, with varying emphasis on executive and non-executive roles. Key principles to guide the selection of an appropriate structure include:

- clear accountability to the Scottish people through the Scottish Parliament;

- clear managerial accountability for performance and efficiency;

- clarity of roles;

- transparency, particularly to help build and maintain the confidence of taxpayers and of the Scottish public generally; and

- creating opportunities to draw in external expertise, perspectives and scrutiny.

2.10 Examples are summarised in the box at the end of this chapter. We have considered these examples and expectations in Scotland of transparency and appropriate involvement of non-executive members.

2.11 Options for the leadership, oversight and governance of Revenue Scotland include the following:

a) An entirely executive Board comprising the Chief Executive and at least two members of the senior management team (with no non-executive members). The whole executive board would be held accountable for the performance of Revenue Scotland.

This model is the most similar to the model in place for New Zealand and HMRC, although in the case of HMRC there is also non-executive input: see text box at the end of this chapter for further detail.

b) A single non-executive Chair for the organisation, to whom the Chief Executive would report. The non-executive Chair would be held accountable for the performance of Revenue Scotland.

c) A Board with a non-executive Chair comprising both non-executive and executive members. The Chief Executive could be a full member of such a Board. The Board, with the Chair in the lead, would be held accountable for the performance of Revenue Scotland.

This model is similar to the composition of, for example, a Health Board, which consists of both non-executive and executive members with a non-executive Chair.

d) A Board made up entirely of non-executive members to which the Chief Executive would report. The Board, with the Chair in the lead, would be held accountable for the performance of Revenue Scotland.

This model is the closest to the standard model for Scottish public bodies. There is scope to vary the size and balance of the Board. The Chief Executive would attend Board meetings.

2.12 We believe that non-executive oversight of Revenue Scotland will be essential in ensuring transparency and robustness of challenge. We also consider it is important that the oversight mechanism should provide clear accountability, a framework in which management can operate effectively, and responsiveness to Ministers, the Parliament and the people of Scotland. We believe that option d) is likely to best meet these criteria since it gives a strong role to non-executives and we consider that a small non-executive Board is likely to be most effective. However, we would welcome your views on all of the options listed, and on any other approaches that you consider appropriate.

2.13 Whatever structure is chosen, those ultimately taking responsibility for leading Revenue Scotland will be accountable to the Scottish Parliament for its performance and successful meeting of its statutory duties. The leadership of Revenue Scotland will also have to maintain a strong working relationship with Scottish Ministers, with whom we propose they should agree the body's strategic priorities through the formal mechanism of periodic corporate plans. This is a standard approach across central government and the relevant elements of the Scottish Administration.

2.14 We want to ensure that transparency is a key principle of tax administration in Scotland, and this should include transparency in the process of selecting and appointing those responsible for Revenue Scotland. If Revenue Scotland is to be a Non-Ministerial Department then all of its staff, including senior executives, will be civil servants, who have to be appointed through fair and open competition regulated by the Civil Service Commission. Any non-executive Board members would be appointed in line with the Nolan principles. Once we have reached a final proposal on the leadership of Revenue Scotland, we will also need to propose who would be involved in a selection panel for senior appointments to Revenue Scotland, and how such appointments would be ratified.

Chief Executive

2.15 Whether Revenue Scotland is led by a non-executive Board or there is some other model, we see an obvious role for a Chief Executive with overall responsibility for its day-to-day operation. We also expect that the Chief Executive would be the Accountable Officer for Revenue Scotland.

2.16 We would be interested in your views on giving this post a distinctive title, for example Comptroller-General or Chief Collector.

Q3 What are your views on the governance options for Revenue Scotland, and on how people should be selected for appointment to the Board and to the post of Chief Executive?

Staff of Revenue Scotland

2.17 It is envisaged that the staff of Revenue Scotland will be civil servants of the Scottish Administration. The alternative would be to create a new category of public servant and we can see no case for doing so. Having the staff as civil servants will facilitate flexibility of movement around the Scottish Administration, enabling Revenue Scotland to draw on the resources of other departments. In recognition of the particular requirements of the tax function, Revenue Scotland will develop a strategy for training and developing its personnel including interchange and knowledge transfer from organisations with existing expertise in tax.

2.18 As with other civil servants, the staff of Revenue Scotland will be bound by the Civil Service Code and the Official Secrets Act: they will not be permitted to make use of any information to which they have access in the pursuit of their duties except where this has been authorised and is for a defined purpose (see Chapter 7).

Public engagement and communications

2.19 The list of duties proposed for Revenue Scotland places emphasis on public engagement and the provision of information for taxpayers and their appointed agents. The importance of appropriate guidance in promoting a culture of tax compliance is discussed in more detail in the section on Ensuring Tax Compliance (Chapter 4).

2.20 Engaging regularly and appropriately with taxpayers, their agents and the community of tax professionals will be a key requirement for Revenue Scotland and we are keen to seek your views on how it should do so.

2.21 At a strategic level, the Cabinet Secretary for Finance, Employment and Sustainable Growth has indicated that he will chair a Tax Consultation Forum, which will meet twice a year. Revenue Scotland will support this Forum, working closely with the division of the Scottish Government Finance Directorate that is responsible for tax policy. Revenue Scotland and the Scottish Government will also continue to engage more broadly with taxpayers, their agents and representative organisations in Scotland.

2.22 In line with international best practice, Revenue Scotland will, wherever possible, consult broadly in advance of changes to tax legislation and practice. The circumstances in which this may not be possible are outlined at Chapter 8. It will also engage in more regular and informal consultation, notably on technical developments and we are particularly interested in your views on the most effective means of doing so.

Q4 When, how and on what subjects should Revenue Scotland engage with taxpayers, their agents and tax professionals?

Provision of information

2.23 We also intend that Revenue Scotland will consult prior to the publication of tax guidance and that, in line with the Digital First approach, information about how tax decisions are made will be placed on-line. Revenue Scotland will use its website to provide up-to-date information in a way that is responsive to the needs of taxpayers and their agents. Handling communications in this way will help reduce costs and increase efficiency, although we recognise that there may be a need to provide some information in other formats also and would welcome views on what these might be. However, we propose that Revenue Scotland will also offer a more tailored service to deal with complex enquiries. Revenue Scotland should also remain up to date with the technologies that will best serve taxpayers and agents. We would welcome your views on the use of text messaging and social media in particular.

Q5 How and in what form should Revenue Scotland provide information to, and communicate with, taxpayers and their agents?

Tax authorities: examples of international governance models

UK

The UK's Tax Authority, HMRC, is a Non-Ministerial Department. It is overseen by Commissioners appointed by the Queen. All Commissioners are part of the Executive of HMRC. The Commissioners work with HMRC's Board, which is made up of the senior executives of the organisation and three non-Executive Directors and the Executive Committee.

Ireland

The Irish Revenue is headed up by an Executive Board comprising a Chair and two Commissioners, all three of whom carry the rank of Secretary General. The Chairman of the Board is also the Accounting Officer for the Revenue. Targets for the Irish Revenue are agreed with the Department of Finance. The Irish Revenue is responsible to a Minister for its expenditure and overall performance but may not be directed on how it exercises its functions. Tax legislation in Ireland is prepared by the Revenue working to the policy direction set by the Department of Finance.

New Zealand

Although Ministers retain overall responsibility for the running of the New Zealand Inland Revenue and for the direction of tax policy, they have no locus in individual tax affairs. The Tax Administration Act (1994) sets in statute the existing role and powers of the Commissioner for the Revenue, a Public Service appointee. The Commissioner is supported in the exercise of her functions by a team of 6 civil servant Deputy Commissioners, responsible for the following areas:

Tax collection, audit compliance;
IT systems, systems design;
Policy;
Transformation;
Legal /technical /function /independent interpretation of the law (Office of the Chief Tax Counsel); and
Corporate services.

Chapter 3: Powers and Obligations

Chapter summary

- We propose in principle that:

- the powers of Revenue Scotland should be clear, broad enough for it to discharge its functions effectively and, wherever possible, consistent across taxes;

- Revenue Scotland's powers will be subject to clear rules. Where the powers are more intrusive, these rules will include when and by whom such powers could be used; and

- the obligations on taxpayers must be clear.

- Revenue Scotland should have broad powers to require information, inspect business premises, and inspect and take samples of goods and materials provided that it has good reason to believe this is relevant to determining the tax due. In some situations this may include requesting information from third parties.

- Investigatory powers, including the power to search premises, should be subject to strict safeguards in line with existing practice in Scotland such as the need for search warrants.

- We are seeking views on how any criminal investigations should be handled, in the light of the limited capacity that Revenue Scotland will have, at least initially.

- We propose that the key obligations on taxpayers should be that they must notify Revenue Scotland if they have or think they will have a liability to pay tax; self-assess their tax; pay the tax due within set timescales; keep tax-related records for a specified period - possibly five years - and the records must contain enough detail to allow the tax due to be checked accurately.

- We propose that both taxpayers and Revenue Scotland should have the right to make any amendments to tax returns and calculation of the tax due. We propose that for taxpayers the time limit should be one year and for Revenue Scotland it should be four years, except in cases of fraud which may have a twenty-year time limit.

- As RoS and SEPA will administer LBTT and Scottish Landfill Tax respectively, we intend that Revenue Scotland should be able to delegate powers to these, and possibly other, public bodies but would welcome comments on whether certain powers should never be delegated.

Introduction

3.1 Like every other tax authority, Revenue Scotland will require certain powers to manage the tax system when it takes up its full statutory function from April 2015. These powers must be broad enough to enable it to manage the taxes efficiently and effectively, but these powers must not place an undue burden on, or undermine the rights of, taxpayers. We propose to legislate for powers that are proportionate and enable Revenue Scotland to do its job, while having regard to compliance costs for taxpayers.

3.2 While initially the Scottish Government will be responsible for just two devolved taxes - LBTT and Scottish Landfill Tax - the 2012 Act allows for the devolution of further taxes. In designing the framework of powers, we are focussing primarily on requirements for the effective administration of the devolved taxes, while looking also to a future where Revenue Scotland might have a wider set of responsibilities. We are aiming to set out a framework based on clear principles that will simplify the approach to administration of any further taxes for both taxpayers and Revenue Scotland.

Tax Powers Design Principles

3.3 We are proposing a framework of tax collection powers that is:

1. as far as possible, clear and consistent across all taxes administered by Revenue Scotland. This will avoid having to set out powers for each devolved tax and should make the tax system simpler and easier to understand. In turn, this will help reduce costs for both Revenue Scotland and compliant taxpayers.

2. effective in tackling non-compliance. The framework of powers will be generic, applying to all relevant taxes, but must also be effective in ensuring tax compliance.

3. proportionate and subject to clear rules and limits on the use of the more intrusive powers. We would expect Revenue Scotland to need to use the more intrusive powers relatively rarely such as to demand entry to business premises without prior notice or search a property. There must be appropriate prior checking and approval of use by Revenue Scotland of such powers, and it must be clear when such powers could be used, and who is responsible both for granting approval and for using the powers.

4. clear in the obligations it places on taxpayers. For a tax system to work, some obligations have to be laid on taxpayers. These obligations need to be set out clearly, to help provide certainty to taxpayers. Clarity and certainty benefit both Revenue Scotland and taxpayers by avoiding uncertainties and disputes, so reducing costs.

Q6 What are your views on the proposed framework for tax collection powers? We would be especially interested to know whether you see merit in the creation of a "Taxpayers' Charter".

A Possible Framework for Tax Powers

3.4 Around the world different jurisdictions recognise these issues, and choose to put them into effect in different ways. In developing proposals we have examined the tax powers in other jurisdictions, especially: New Zealand, which has a similar population to Scotland; Ireland, where the tax system has historically been influenced by the UK; and the UK itself. In looking at powers within the UK, we note that HMRC has recently undertaken a review of its powers and penalties regimes with a range of stakeholders. We have taken the outcome of this review into account.

3.5 We believe that the best approach to developing a framework of powers is to hold an open discussion through this consultation while recognising there are good models used in other tax jurisdictions, with a view to informing the draft legislation in the proposed Tax Management Bill that will set out the detail. The rest of this chapter considers the following key issues about powers:

- taxpayer obligations;

- power to require information;

- power to inspect;

- investigation powers, including the power to search;

- power to amend tax returns; and

- delegation of powers.

3.6 Additional powers to issue penalties and to report cases of tax fraud to the Crown Office and Procurator Fiscal Service are discussed in the next chapter.

Taxpayer obligations

3.7 Any tax system needs to balance the rights and obligations of taxpayers, and to set these out clearly so that as much certainty as possible is provided. We invite views on what obligations should be placed on taxpayers. However there seem to us to be some unavoidable obligations and these are set out below:

a) A taxpayer should be required to notify Revenue Scotland or a delegated public body (see Paragraphs 3.47 and 3.48 below) if they have or expect to have a liability to pay a devolved tax.

b) A taxpayer should be required to self-assess their tax.

c) A taxpayer should pay the tax due within the time period set for the particular tax / transaction. Taxpayers who wish to contest any assessment by Revenue Scotland will also be required to pay within the designated period, consistent with the approach in place for Non-Domestic Rates in Scotland. Where the taxpayer is successful in contesting the assessment, Revenue Scotland will reimburse any overpayment at a set rate of interest.

d) A taxpayer should retain tax-related records in an accessible form for a required period of time. We propose that this be five years for business records, in line with the Scottish Statute of Limitations, and two years for personal records.

e) A taxpayer's records must contain sufficient detail to enable the taxpayer to submit an accurate tax return and to allow Revenue Scotland to check its accuracy if required. This is already a requirement for UK taxes.

Q7 What are your views on the proposed obligations on taxpayers? Are there any other obligations on taxpayers which should be included?

Power to Require Information

3.8 Where Revenue Scotland is carrying out compliance activity, it will need the power to require information, and where necessary remove or take copies of documents (including electronic records), to allow it to check the accuracy of taxpayers' returns. After considering what is done in other jurisdictions, we propose that Revenue Scotland needs the following powers:

a) Asking the taxpayer for information

3.9 Alongside the proposed obligation on taxpayers to keep records, Revenue Scotland should have the power to require information from, or copies of, those records.

3.10 To minimise the burden on the taxpayer and prevent unnecessary intrusion, we propose that Revenue Scotland's power to require information should be limited to what it reasonably believes to be relevant to the tax return (or lack of tax return) in a given case.

3.11 We also believe that Revenue Scotland should have no right to see information that is subject to legal professional privilege, that is to say, information in respect of which a claim to confidentiality of communications could be maintained in legal proceedings. It is a long established principle in Scots law that legal advice is privileged and this principle is respected in the UK tax code. We would propose to follow this practice and do not propose that tax advice provided by advisers other than lawyers should be privileged unless new judgments create relevant precedents.

b) Asking a third party for information about a known taxpayer

3.12 There might be situations where information relevant to a tax return is held by a third party, such as an agent of the taxpayer or the other party to a transaction. We propose that Revenue Scotland should have the power to require this information or copies of records held by third parties directly. As above, we propose that Revenue Scotland should only be able to require from a third party information that it reasonably believes to be relevant in a given case and we suggest that there should be an exclusion for privileged information. In order to allow the third party to respond appropriately, we consider that Revenue Scotland should have to set out its requirement in writing (perhaps electronically) and to meet minimum standards which might include:

- Providing the name and address of the taxpayer;

- Stating clearly what information is required; and

- Explaining why Revenue Scotland is asking the third party rather than the taxpayer.

c) Asking a third party to reveal the identity of an individual

3.13 Some other tax authorities have the power to ask certain businesses to reveal the identity of a person based upon some information they hold. This might be important if in the process of looking into any case, Revenue Scotland picks up information - such as a credit card, bank account or telephone number - but does not know the identity of the person to whom the information relates. This power is sensitive and unsurprisingly in other jurisdictions there are strict conditions on when it can be used and who within the tax authority is authorised to use such a power to request information.

3.14 We are considering whether to propose such a power for Revenue Scotland. If we do propose such a power then there are certain important safeguards. We think that, as with the other powers to request information set out above, Revenue Scotland should only be able to ask a third party to reveal the identity of an individual where Revenue Scotland reasonably believes that the identity is relevant to ensuring that an accurate return of tax is made in a given case. We also think that, if it is to have this power, Revenue Scotland should have to set out a protocol covering which person or group of people amongst its staff may approve such a request and how it should be made, and that such a protocol would have to be made public. We would particularly welcome any comments on these safeguards and any others that you think might be needed.

d) Seeking information from businesses about clients who meet certain criteria

3.15 We are aware that HMRC has been successful in identifying tax fraud by using selective requests for information. One notable example was HMRC's request to banks to disclose the names of their clients who held offshore bank accounts, which raised a substantial amount of money and reduced the level of tax evasion. We are considering whether Revenue Scotland should have an equivalent power and what safeguards would have to be put in place to ensure that it was used appropriately. One safeguard we are considering is the requirement that Revenue Scotland create and publish a protocol along the same lines as that discussed above for requests to reveal the identity of an individual. In the case of this wider power to ask for information about individuals who meet certain criteria, we would expect that the approval of any request would have to be at a senior level within Revenue Scotland. Again, we would welcome your comments.

3.16 In all of the above cases we will provide the right of any person required to provide information either to ask Revenue Scotland to review its decision to require information or to appeal to an independent tribunal. (See Chapter 6).

Power to Inspect

3.17 The power to inspect can range from the minimal power of inspecting accounting records (physical or electronic) up to inspecting premises and goods or materials. In many cases an inspection may involve a requirement for information but we believe that the powers Revenue Scotland should have to require information and the safeguards that should apply to those powers are broadly the same regardless of whether this is part of an inspection or a separate process. This section therefore concentrates on other aspects of an inspection.

3.18 One critical point is that the power to inspect does not equate to a power to search. In an inspection, Revenue Scotland could, for instance, ask for a tour of a building and request access to any area, but it would not have the right to force access. Revenue Scotland would have the right to see any goods on open display as part of an inspection and to ask to be shown others, but a tax official would not have the right to open cupboards, drawers or boxes forcibly. Search powers are discussed separately below under investigatory powers.

3.19 We believe that in all but the most complex cases, validation of the amount of tax due should be concluded as quickly as possible so as to deliver certainty to the taxpayer and to minimise delay and administrative cost to both the taxpayer and Revenue Scotland. To achieve this objective we propose that Revenue Scotland should have the following, relatively broad, powers of inspection:

a) Inspection of Records

3.20 Records are a key part of a business' accounting systems and will be used by the taxpayer and, if appropriate, his or her agent to submit the tax return. Therefore Revenue Scotland will need to inspect such records if it wants to verify the accuracy of the taxpayer's return.

b) Inspection of Premises

3.21 We propose that Revenue Scotland should have the power to inspect taxpayers' business premises, if it believes this would be the most appropriate way to check a tax return. We have reached this conclusion for three principal reasons.

3.22 Firstly, visiting the premises enables the tax official to consider if any business records provided appear to give an accurate picture of the business and in some cases to judge whether the position set out in the records is credible.

3.23 Secondly, business records are normally kept on the premises; it may therefore be more convenient for both the taxpayer and the tax official if the records are inspected on the premises. Such inspections reduce the risk of documents being lost in transit to a tax office and enable the business continued access to them while they are being inspected.

3.24 Thirdly, we understand from other tax authorities that tax enquiries where records are inspected on the premises are normally completed more quickly. We think this would be a significant benefit as shorter enquiries minimise the compliance burden, both in cost and time, for both the taxpayer and Revenue Scotland and deliver certainty faster.

3.25 However, we do not propose that Revenue Scotland should have the power to inspect domestic premises. We would expect that Revenue Scotland would visit domestic premises only where it has been invited to do so by the taxpayer - for example, the taxpayer may have a significant volume of paper records at home or work from home, and find it easier to have a visit from a tax official than to travel or arrange to have records securely transported. Therefore, consideration will have to be given to how to frame the powers in respect of businesses that are carried on at the taxpayer's home.

3.26 Where Revenue Scotland proposes to inspect business premises, we believe that good practice would require it to notify the taxpayer in advance and arrange a visit during normal working hours or some other time convenient to the taxpayer. We recognise that in some more limited circumstances, there may be a need for Revenue Scotland to inspect premises unannounced and this is discussed under investigatory powers below.

c) Inspect goods or materials (and take samples)

3.27 There may be occasions when it will be appropriate for Revenue Scotland to inspect goods or materials, for instance because the goods themselves are directly relevant to a tax return or because inspecting the goods would give a tax official a better understanding of the business and its overall tax position. We propose that Revenue Scotland should have a power to inspect goods or materials in line with the power to inspect business premises described above.

3.28 It may also be necessary for Revenue Scotland to take a sample of any goods or materials, for instance a sample of waste material sent to landfill if there were any dispute about the nature of the material and hence the tax due. We propose that Revenue Scotland should have the power to take samples and to remove them from the premises, where such a removal is required in order for Revenue Scotland to be able to accurately determine the tax due.

Investigatory Powers

3.29 While most taxpayers will voluntarily comply with requests for information or inspections to ensure that tax returns are comprehensive and accurate, some may refuse. This could be part of an attempt to evade tax (see Chapter 4). In some cases it may be related to covering up other criminal activity. It is important that Revenue Scotland has sufficient powers to investigate the situations where it believes that tax evasion may be taking place and to refer this to the Crown Office and Procurator Fiscal Service for consideration, where appropriate.

3.30 The use of investigatory powers needs to be subject to appropriate safeguards. Such powers should be consistent with established legal practice in Scotland, including the criminal law. Where Revenue Scotland decides that it needs access to premises, goods or materials when such access has been sought but refused by the taxpayer, or where Revenue Scotland considers that making a request might allow someone to destroy important evidence, then we propose that Revenue Scotland would have to obtain a search warrant from a Sheriff as is done currently by the police and also by other public bodies with investigatory powers including HMRC and SEPA. Where Revenue Scotland wished to inspect business premises as described under "Power to Inspect" above but to do so without giving advance notice, it is for consideration whether prior authorisation within Revenue Scotland should be required.

3.31 There is also a relevant question about who should exercise the powers on behalf of Revenue Scotland. HMRC has broad-ranging powers: designated officers with appropriate training have the standing right to exercise particular powers. A number of existing organisations within the Scottish public sector exercise investigatory powers, including, for example, Marine Scotland. For these organisations it is usual for individual officers, appropriately trained and experienced, to be authorised to use specific powers on particular occasions.

3.32 We recognise the importance of providing the public with assurance that investigatory powers will be used proportionately by individuals who have been appropriately trained. As Revenue Scotland is a small organisation that will have responsibility only for two taxes at its inception, it may be appropriate to consider whether use of these powers could or should be delegated to be exercised on its behalf rather than to seek to develop capacity in-house. However, it will be important that there is some mechanism in place to allow criminal investigations to be conducted if Revenue Scotland considers that it has evidence to suggest that an investigation is necessary.

3.33 We propose that a formal internal mechanism for use of investigatory powers should be agreed by Revenue Scotland and made public and we are open to suggestions about how this might best be managed, including options to ask existing bodies with appropriate powers to carry out investigations on behalf of Revenue Scotland.

Q8 What are your views on the specific powers proposed for requesting information, for inspecting and sampling and for investigating? Are there any safeguards that might need to apply to them or any other powers you think Revenue Scotland may need?

Correcting Taxpayers' Tax Returns

3.34 The powers to require information, to carry out inspections and to investigate are all aimed at getting a clear picture of a taxpayer's affairs in order to ensure that the right amount of tax is paid at the right time. In many cases, the use of these powers will lead Revenue Scotland to conclude that the tax return is accurate, but there will be situations where a tax return will have to be amended by Revenue Scotland. There will also be situations where a taxpayer will volunteer new information and seek to amend a tax return that he / she has already submitted. It is important that we are clear about the processes and, critically, time limits that will apply in these situations.

a) Revenue Scotland amendments

3.35 We believe that there are generally three situations in which a tax authority might amend a submitted tax return:

- to amend any basic errors, such as arithmetic or significant spelling errors, in the tax return. This could occur even where the tax authority has no concerns about compliance. It would not extend, however, to incomplete returns, which Revenue Scotland will return to the taxpayer.

- where a tax official, after requiring further information and/or carrying out an inspection or investigation, has found errors and can now calculate a corrected figure for the tax liable.

- where a tax official after requiring further information and/or carrying out an inspection or investigation has found that the tax return is incorrect, but due to lack of records the official cannot calculate the precise amount of tax liable. In such situations the official will need to make reasoned best judgements as to the amount of tax liable.

3.36 We propose that Revenue Scotland should be able to amend tax returns and notify the taxpayer in all three situations. Both the second and third situations would include the possible circumstances where no return has been submitted but Revenue Scotland identify that there is still a liability to pay tax, although in those situations we would usually expect Revenue Scotland to require the taxpayer to submit a return.

3.37 In UK tax law, HMRC can amend tax returns in any of the situations described above by the issuing of what are commonly called "assessments". We are considering calling the Scottish equivalent 'Revenue Scotland assessments' so that it is clearer to taxpayers that this an amendment to the tax due that comes from Revenue Scotland. We would be interested in your comments on whether this is clearer terminology or your suggestions for other terms that may make it easier for a taxpayer to understand the process.

b) Taxpayer amendments

3.38 We also recognise that taxpayers might need to amend their tax returns for a variety of reasons, including the need to rectify errors or omissions they have made themselves. We believe a power to accept such amendments from taxpayers is an important feature of any self-assessment tax system. Such taxpayer amendments are known as "voluntary disclosures" for some taxes in the UK but again, we wonder if this is the clearest and best terminology. We are considering the term 'amended returns' instead.

c) Time limits for amending tax returns

3.39 Tax jurisdictions impose time limits for amendments to tax returns on both tax authorities and taxpayers, after which the return cannot be amended. We agree that it is important for both taxpayers and Revenue Scotland that tax returns are deemed to be closed after a specific period of time, even if they are incorrect. This is consistent with the overarching principle of certainty set out in the Cabinet Secretary's statement to the Scottish Parliament on 7 June 2012.

3.40 The UK has a mixture of time limits setting out: how long HMRC has to start an examination of a tax return after it has been submitted (called an "enquiry window"), in what circumstances HMRC can issue a "discovery assessment" outside this window, how long both HMRC and the taxpayer have to amend submitted tax returns, and the time limits for assessing a taxpayer where there is evidence of fraudulent tax evasion.

3.41 We recognise that the use of enquiry windows, which has historical roots, can provide a reasonable amount of certainty to taxpayers. However, the UK system is complex and we know that it can lead to disputes - for instance, over whether or not HMRC has discovered a new piece of information that justifies it issuing a "discovery assessment" after the enquiry window has closed. We would therefore prefer to introduce a system, similar to one used in New Zealand, which would allow both Revenue Scotland and taxpayers specific periods of time to amend a tax return.

3.42 We are minded to set a 4-year period within which Revenue Scotland would be able to amend tax returns where there is no evidence of fraudulent tax evasion. On a technical point, we would propose to start counting that period from the later of the date on which the tax return period ended or the date the return was submitted, if the return were submitted late.

3.43 A 4-year time limit should not allow Revenue Scotland to delay taking action when it has received or discovered information that indicates that a tax return is incorrect. We propose to require Revenue Scotland to amend a tax return by issuing an assessment within one year of having sufficient information to do so.

3.44 In cases of fraud, the Scottish Government is minded to adopt global practice and allow Revenue Scotland to issue tax assessments to cover a period of up to twenty years.

3.45 We also want to allow taxpayers sufficient time to amend a tax return. We propose that taxpayers might have one year to amend any return. We recognise that taxpayers have a longer period than this for some UK taxes at present. We would be prepared to consider a longer period if there is a strong case in favour of it.

Q9 What are your views on the proposals set out for the amendment of tax returns by Revenue Scotland or taxpayers? Please comment on the terminology, the time limits proposed and anything else you consider relevant to the amendment of tax returns.

Delegation of powers to other public authorities

3.46 As announced by the Cabinet Secretary for Finance, Sustainable Growth and Employment to the Scottish Parliament on 7 June 2012, in the first instance, from April 2015, the intention is that Revenue Scotland will delegate to RoS and SEPA responsibility for the collection of LBTT and Scottish Landfill Tax respectively. We consider it appropriate that Revenue Scotland should be able to delegate some responsibility for ensuring compliance with those taxes to RoS and SEPA. It will, of course, be important for Revenue Scotland to be able to revoke the delegation of the powers where appropriate.

3.47 Generally we are minded that Revenue Scotland should be able to delegate powers to other Scottish public sector authorities as it deems appropriate. In the interests of transparency, we would expect any such delegation to be subject to the publication of a formal agreement between Revenue Scotland and the body concerned. We would be interested in your views on any tax collection powers which you think Revenue Scotland should not be allowed to delegate.

Q10 Are there any powers that Revenue Scotland should not delegate and, if so, what are they and why?

Chapter 4: Ensuring Tax Compliance

Chapter summary

- We propose that the devolved taxes regime should be designed to encourage and promote compliance. This minimises tax administration costs, reduces the burden on individual taxpayers and maximises tax receipts needed to pay for key public services.

- The regime should support taxpayers to be compliant through the provision of guidance and prompts, and by offering systems that are easy to use.

- We propose that Revenue Scotland should be able to deploy a flexible range of civil sanctions appropriate to the severity of the non-compliance and designed to provide incentives to taxpayers to be compliant. Revenue Scotland would operate with discretion within a framework setting maximum penalties supported by guidance. Both elements of this framework would be consulted on before adoption.

- Where there are reasonable grounds for believing that criminal offences have been committed by a taxpayer or by a taxpayer's agent, this will be reported by Revenue Scotland to the Crown Office and Procurator Fiscal Service to consider whether a prosecution should take place.

Why compliance is important

4.1 In operating any tax system, the tax authority needs to be able to ensure that taxpayers comply with the obligations placed on them by the law to pay the right amount of tax, and that they do so in a timely way. It is in the public interest that these arrangements operate efficiently, effectively, and predictably, otherwise the administrative effort of ensuring that taxpayers pay their taxes would use up too much of the revenue received, leaving less for important public services. It is also vital that the tax authority's use of sanctions is fair and proportionate, that the sanctions are operated in an even-handed and transparent way, and that, where appropriate, taxpayers have a right of appeal where they disagree with the way that sanctions have been applied.

4.2 This chapter describes the sort of sanctions that we believe Revenue Scotland should have available to ensure tax compliance and deter non-compliance. It asks questions about the nature of these sanctions, and how they might be applied in the event of non-compliance.

4.3 The great majority of taxpayers want to comply with their obligations, and pay the right tax at the right time. Tax compliance is in the public interest, because it keeps down the cost of tax administration. We therefore want to:

- provide a tax environment that makes it as easy as possible to comply, and to help compliant taxpayers to continue to pay the right tax on time. This aligns directly with the principle of convenience for the taxpayer, set out in the statement on tax to the Scottish Parliament of 7 June 2012;

- ensure that systems put in place allow taxpayers to appoint an agent to manage their tax affairs on their behalf;

- assist taxpayers who want to be compliant but may sometimes not manage to achieve this by providing support and advice;

- encourage non-compliant taxpayers to become compliant;

- give Revenue Scotland power to reduce or suspend civil penalties where the taxpayer has co-operated with Revenue Scotland, for example in identifying and calculating the right amount of tax; and

- ensure that, where there are reasonable grounds for believing that criminal offences have been committed by a taxpayer or a taxpayer's agent, Revenue Scotland is able to report this to the Crown Office and Procurator Fiscal Service to consider whether a prosecution should take place.

Promoting compliance

4.4 To provide a tax environment that makes it as easy as possible to comply and to help compliant taxpayers to continue to pay the right tax on time: we will ensure that tax legislation is as easy as possible to understand, and that ease of use is 'designed in'. We will also consult on proposals for new or changed tax legislation in future.

4.5 We propose that Revenue Scotland will provide taxpayers and their agents with plain-English guidance material before the relevant tax provisions come into effect. Revenue Scotland will consult widely on its guidance before it is published. Our intention is that all guidance should be tested for readability and that it should achieve recognised standards. In addition to paper-based communications, Revenue Scotland will operate a responsive, accessible website providing information on issues that taxpayers or their agents identify as helpful or important. This website would include Frequently Asked Questions (and answers) and these would be updated and augmented regularly. Where taxpayers raise specific queries, Revenue Scotland and the bodies to which it delegates its tax collection powers will respond as quickly and expertly as possible.

4.6 We will ensure that guidance discusses and provides clarity on the issue of when tax must be paid. In line with the principles of the Scottish Government's Digital First approach outlined in Scotland's Digital Future and with the principles of inclusive communications, the electronic systems used to collect tax on-line will be as responsive and as easy to use as possible, with screen prompts to guide users and to minimise the risk of incorrect or unlikely combinations of information being entered. On-line interaction will alert taxpayers or their agents to problems with information they are providing or to key dates within which further action should be taken. We recognise that provision must also be made for those who have difficulties accessing on-line processes. Arrangements will be made for those whose needs require them to be able to make returns and pay by other means. We will welcome views on to whom, and under what circumstances this should apply and what alternatives would be helpful.

Q11 What else might be done to make it as easy as possible for taxpayers to comply with their obligations, and to ensure that those who wish to comply are supported to do so?

4.7 To ensure that systems put in place allow taxpayers to appoint an agent to manage their tax affairs on their behalf: some taxpayers will want to employ an agent to handle their tax affairs. Revenue Scotland will develop systems in such a way as to recognise agents and enable them to operate on behalf of taxpayers, with access to appropriate information, etc.

Q12 What particular features should Revenue Scotland's systems include to help agents to operate most effectively on taxpayers' behalf?

4.8 To assist taxpayers who want to be compliant but may sometimes not manage to achieve this: we propose that Revenue Scotland should operate a proportionate, proactive regime that seeks to identify taxpayers who have not always managed to be compliant in the past and to offer assistance, for example by reminding them of their obligations and giving advance warning of deadlines. To reduce the costs associated with such a regime, it would likely be automated.

4.9 Similarly, where taxpayers self-assess an amount of tax payable that Revenue Scotland considers to be incorrect, Revenue Scotland will, as swiftly as possible, either amend the tax return, issuing a revised assessment, or enter into dialogue with the taxpayer. Where taxpayers indicate that they want to co-operate in calculating and paying the right amount of tax, Revenue Scotland would help them to do so by providing advice and assistance.

Sanctions where justified

4.10 To encourage non-compliant taxpayers to become compliant: Revenue Scotland will seek to identify a high proportion of non-compliant activity by operating systems such as risk-based and random assessments. Non-compliant behaviour would include:

- not declaring or not paying tax due, or not doing so in a timely way;

- declaring or paying less tax than is due;

- seeking to conceal the true amount of tax due;

- refusing to provide information reasonably sought by Revenue Scotland;

- not keeping adequate records to enable Revenue Scotland to check whether a tax return is correct;

- concealing or destroying records or other information sought by Revenue Scotland; or

- any other deliberate or dishonest actions designed to enable a taxpayer to avoid paying some or all of a tax charge due.

4.11 We propose that in cases of non-compliant behaviour, Revenue Scotland should be empowered but not obliged to apply civil penalties. The circumstances in which penalties may be applied, and maximum penalties, will be set out in legislation. We will consult further before placing this legislation before the Parliament - see paragraph 4.19 below. We propose that the regime should be:

- proportionate;

- consistent; and

- predictable.

4.12 To give Revenue Scotland power to reduce or suspend civil penalties where the taxpayer has co-operated with Revenue Scotland, for example in identifying and calculating the right amount of tax: we believe that a proportionate regime will be achieved by giving Revenue Scotland discretion to decide whether to apply a penalty, with the amount of that penalty subject to maxima set in legislation. Maxima might be absolute amounts or percentages of the amount of tax due.

4.13 In brief, a regime would embrace:

- the use of warning letters for minor tax non-compliance, like submitting a tax return late for the first time;

- the use of small-scale fixed-rate penalties, e.g. £100, where a taxpayer has failed to comply after a previous warning;

- discretion to suspend penalties where the taxpayer agrees to take action to comply in future, and waive these penalties where the taxpayer fulfils his/ her commitments over the specified period;

- the use of daily penalties, e.g. £20 per day, where despite receiving a fixed penalty and a further request to do something (for example, to supply information) the taxpayer has failed to comply; and

- the use of percentage-based penalties, e.g. 50 per cent of the undeclared tax, where a taxpayer has mis-declared tax in a way that is either careless or fraudulent.

4.14 In each of these cases, the tax itself would also be payable together with any interest due. Interest would be calculated in accordance with a published formula applied over the number of days by which the tax payment was late. We propose that Revenue Scotland should pay interest to the taxpayer where tax has been overpaid. The interest rate to be charged for late payment or underpayment of tax and the interest rate to be paid when refunding overpaid tax would be set in secondary legislation.

4.15 To ensure the regime is consistent, predictable and proportionate, exercise of discretion should be within guidance to be consulted on and published by Revenue Scotland. The guidance would set out the factors that would be taken into account in deciding whether and when to apply a penalty, and if so at what level within the statutory maximum. Factors might include the amount of tax under-declared or not declared, whether the taxpayer had behaved in a non-compliant way before, whether errors made were careless or reckless or involved deliberate concealment or deception, whether there was evidence to suggest that genuine errors had been made, whether or not the taxpayer or their agent informed Revenue Scotland of the errors voluntarily, and whether the taxpayer had assisted Revenue Scotland in identifying the right amount of tax due.

4.16 The guidance would also set out how any formula-derived penalties might be calculated (for example, how penalties for late payment varied depending on the size of the outstanding tax payment and how late the payment was).

4.17 The guidance would also set out procedures to be followed by Revenue Scotland in applying penalties, including the process for setting a penalty. Any civil penalty applied by Revenue Scotland would be subject to review and appeal. Our proposals for review and appeal arrangements are set out in Chapter 6.

4.18 Where tax is due and any review or appeals processes are complete, the taxpayer owes a debt to Revenue Scotland. Arrangements for unpaid tax, whether disputed by a taxpayer or not, are set out below.

4.19 We intend that consultation should take place during the passage of the proposed Tax Management Bill on a draft statutory framework for maximum penalties. We also intend that Revenue Scotland should consult on draft guidance on the use of penalties in good time before the guidance would be expected to come into use in April 2015.

Q13 What are your views on the list of non-compliant behaviours at Paragraph 4.10 - for example, are there other situations in which civil penalties should be available?

Q14 What are your views on the proposal that Revenue Scotland should have discretion, subject to maximum penalties set in legislation and subject also to published guidance, to determine the level of sanctions? What factors might be taken into account by Revenue Scotland in deciding what level of sanction to apply?

Q15 What are your views on the types of sanction and their possible uses described in the text box at the end of chapter 4?

4.20 Where there are reasonable grounds for believing that criminal offences have been committed by a taxpayer or by a taxpayer's agent, this will be reported by Revenue Scotland to the Crown Office and Procurator Fiscal Service to consider whether a prosecution should take place: proposals relating to criminal investigation are set out in Chapter 3.

4.21 English law includes a common law offence of "cheating the revenue". While this does not apply in Scotland, the Scots common law of fraud is broad and can cover fraud in a tax context. The UK tax code contains many specific offences of the fraudulent evasion of tax that apply and are enforced in Scotland but do not extend to devolved taxes. The Tax Management Bill might include new specific offences of fraudulent evasion of devolved taxes, with penalties including criminal fines and any potential imprisonment.

Collecting unpaid tax

4.22 Most taxpayers will pay the tax due on time. However, some taxpayers may not be able to or choose not to pay the tax they owe Revenue Scotland. In cases where a taxpayer has real difficulty paying the tax due but is willing to find a way of paying, Revenue Scotland should have the flexibility to respond by, for example, agreeing a time-to-pay arrangement.

4.23 Nevertheless, there will be occasions where such voluntary arrangements will not be sufficient to enable Revenue Scotland to meet its duty of collecting as much of the tax due as is economically feasible. In such cases Revenue Scotland will need powers to enforce collection of a debt owed.

4.24 Currently, HMRC has the power, where a Scottish taxpayer has not paid the tax due, to seek a summary warrant from the Sheriff Court. A sheriff must issue such a warrant if HMRC demonstrates to the Court that appropriate processes have been followed (including that a 14-day period has been allowed, following the final demand) and the tax due has still not been paid. The warrant enables HMRC to enforce the outstanding tax together with related costs and proceed to diligence.

4.25 The same procedure applies in relation to council tax arrears. We propose that Revenue Scotland should have a similar power. It could not, however, exercise this power where it has agreed with a taxpayer a time-to-pay schedule on which the taxpayer has not defaulted.

Q16 What are your views on the proposed arrangements for collecting unpaid tax set out above?

Types of Sanction that Revenue Scotland and the Crown Office and Procurator Fiscal Service might use to deal with tax non-compliance.

Chapter 5: Tackling Tax Avoidance

Chapter summary

- We want to make it as easy as possible to pay devolved taxes in Scotland, and as difficult as possible to avoid paying them. We think it is in the public interest to do so. We also think it is important to balance the public interest with the legitimate private interests of taxpayers.

- In tackling tax avoidance, there are roles for promoting compliance, notifying and counteracting avoidance.

- Preventing tax avoidance in the first place, through, for example, making clear legal provisions supported by explanatory material setting out the intention behind the legislation, is likely to be low cost and effective.

- Identifying possible tax avoidance schemes is an important part of tackling tax avoidance. We think there should be a system for notifying such schemes to the Tax Authority.

- Many jurisdictions operate some form of statutory General Anti-Avoidance or Anti-Abuse Rule (GAAR) to assist in tackling tax avoidance. The UK Government will shortly legislate for a General Anti-Abuse Rule. We are minded to include appropriate provisions in the proposed Tax Management Bill and seek respondents' comments on options.

- Effective counteraction will include changes to tax law. There are likely to be circumstances in which it will be necessary to introduce legislation with immediate effect; and it may be justifiable in clearly-defined circumstances to legislate with retrospective effect.

Introduction

5.1 Tax avoidance takes place where an individual or corporate taxpayer seeks to reduce, delay or avoid their liability for tax by taking action which they believe is legal, but which the tax authorities regard as not in keeping with the spirit of or the intention behind the relevant tax legislation. Tax avoidance often involves highly-artificial mechanisms for which the sole or main reason, or one of the main reasons, is to reduce tax due. We believe that it is in the public interest to tackle tax avoidance because:

- it reduces public revenues, and so will lead either to lower spending on vital public services or to an increase in tax rates generally to recoup tax avoided;

- there is a risk to the tax base if other taxpayers behave in a similar way;

- there may be perceived unfairness to compliant taxpayers who continue to meet their liabilities as intended by the law; and

- it can undermine public confidence in the tax system and lead to reduced rates of compliance.

5.2 As well as these specific reasons for tackling tax avoidance, there are wider social reasons for doing so. These include wishing to assert the will of the Parliament, seeking to ensure that the tax system remains progressive (this can be undermined if wealthy taxpayers who have the most to gain from tax avoidance are successful in avoiding tax that others pay), and responding to public concern at perceived unfairness and widening differentials. Additionally, tax avoidance can corrode a tax system because it may result in otherwise compliant business taxpayers using tax avoidance schemes to stay competitive.

5.3 Tax avoidance often exploits features of a tax system that are present for a particular reason (for example to grant a relief from liability to tax that those drafting or passing legislation regarded as deserved) by using them for a purpose that was not envisaged when the feature was put in place originally. In doing so, the tax avoider remains within the letter of the law, but achieves an outcome that was not envisaged.

5.4 Tax authorities may respond to tax avoidance by legislating to provide that the effect being achieved by the tax avoider in a particular case is not legitimate - the loophole is closed. This can result in the tax code becoming increasingly complex. Sometimes unintended consequences arise from action to close loopholes and from complexity generally. As the tax code becomes more complex, it may become more difficult to know what it means and what its effect will be. That in turn creates uncertainty. Complexity and uncertainty are unlikely to be in the public interest - both the taxpayer and the tax authority could be worse off as a result.

5.5 It is important that in seeking to tackle tax avoidance, tax authorities and tax legislation do not add to uncertainty for taxpayers or for the tax authority. It is also important that steps taken to tackle avoidance do not undermine the principle that tax liabilities should be clear and certain, and that tax should be easy to pay. And action to tackle avoidance should be based on clear legal principles, and be proportionate, reasonable and just.

5.6 Tax avoidance is by definition legal. It is different from tax evasion, which involves fraud, misrepresentation or concealment and can give rise to criminal charges. Tax evasion is generally addressed by tax authorities through risk assessment, intelligence, investigation and, where necessary, criminal prosecution. Artificial tax-avoidance activity can risk straying into tax evasion to the extent that elements of misrepresentation or concealment are employed.

5.7 Tax planning takes place when a taxpayer seeks to minimise the tax they are liable to pay by acting within the spirit of the relevant legislation - for example, by using reliefs or allowances provided by Parliament for the purposes intended.

5.8 Tax advisers have a role in guiding taxpayers to remain within the law. Reputable tax advisers will usually not promote or recommend artificial tax avoidance schemes, or schemes where there is a risk of crossing the line into tax evasion. However some tax advisers may choose to promote schemes that are regarded by the tax authority as highly artificial, or which involve very complex arrangements that appear to have as their main purpose, or one of their main purposes, the avoidance of tax. Such arrangements are sometimes referred to as "abusive" - they are considered to abuse elements of tax legislation by achieving results that were not envisaged by those who drafted or passed the legislation in question. Some tax authorities have powers enabling them to give notice that they will not deal with named tax advisers if, for example, they have been involved in abusive schemes. It is for taxpayers to weigh up their relationship with tax advisers. Fees charged by tax advisers who promote tax avoidance schemes may form a significant proportion of the tax saving held out by the adviser as available. If the scheme is challenged successfully by a tax authority, the taxpayer has generally already paid the fee and is left to pay the tax due also (and may also need to pay a penalty).

5.9 It remains the case that it can sometimes be difficult to distinguish between tax planning and tax avoidance; and between tax avoidance and tax evasion. There are likely to be different interpretations and views about the same set of circumstances. Different jurisdictions have different approaches to this issue. The central question is how to identify the public interest and to balance it with legitimate private interest. Some jurisdictions leave this to the courts and tribunals. Sometimes a "clearance" system is used, where the tax authority offers to consider and clear (or not) a particular scheme in advance. Some jurisdictions provide a role for expert panels.

Tackling tax avoidance

5.10 As noted above, tax avoidance is not in the public interest and governments and tax authorities can be expected to take action to limit or end tax avoidance schemes and behaviour. Across tax jurisdictions, the actions to tackle avoidance generally fall into 3 groups:

- Promote compliance - creating an environment where tax avoidance is difficult, and / or providing disincentives for avoiding tax. By putting in place a clear and robust legal framework, Governments can help to reduce the scope for interpretations that create loopholes in tax law. They can also make clear, in supporting material, the effect intended in preparing and passing the legislation. The Scottish Parliament's Standing Orders require a Policy Memorandum to be provided alongside a Bill at introduction, and this would enable the intention of those drafting tax legislation to be set out clearly and in appropriate detail. An effective GAAR as part of the Scottish legal framework for tax could have an important role in promoting compliance by reducing the probability that an avoidance scheme will be successful and so potentially making it less likely that taxpayers will embark on such schemes. Once a legal framework promoting compliance is in place, it will be important to ensure that the tax authority operates it robustly, investigating possible avoidance quickly, and with adequate and appropriately-skilled resources. Together, these measures are likely to promote compliance and reduce the demand for and use of avoidance schemes;

- Notification - this involves identifying as quickly as possible any avoidance schemes through a notification system, together with recognising any weaknesses in the tax legislation that might allow taxpayers to use avoidance schemes. The UK Government's Disclosure of Tax-Avoidance Schemes (DOTAS) legislation is aimed at identifying such schemes. To be effective, identification arrangements need to be actively managed by tax authorities so that questionable schemes are investigated quickly and, if justified, counteraction can be taken. The tax authority also needs to be active and rigorous in gathering information about the use of arrangements to avoid tax that may come to its notice in the course of its work of administering taxes;

- Counteract - this includes taking action against known or suspected avoidance schemes so as to stop these schemes working - for example by contesting the schemes through appeals processes, by using any GAAR to support payment of tax, and / or by changing the relevant legislation to make clear that the schemes in question do not qualify for exemption or relief. Targeted anti-avoidance rules (TAARs) are intended to ensure that particular tax avoidance schemes in relation to specific taxes will not succeed.

Q17 What are your views on the measures proposed for tackling tax avoidance? What other methods might be employed?

Implications for Scotland

5.11 SDLT, which is being disapplied in Scotland and will be replaced by LBTT from April 2015, has been subject to sustained and aggressive tax avoidance. There is a risk that LBTT could be subject to similar activity. We have included in the LBTT Bill a number of the TAARs in place in respect of SDLT, for example provisions stating that reliefs may not be claimed for tax-avoidance purposes. LBTT excludes some reliefs which are thought to have been sources of avoidance under SDLT. We have also decided not to replicate in LBTT legislation the anti-avoidance measures in section 75A of the Finance Act 2003. The LBTT legislation was planned on the basis that we would consult on a GAAR in respect of all devolved taxes. We seek respondents' views on a GAAR below. We are currently consulting on proposals for a Scottish Landfill Tax and draft legislation will be informed by the outcomes of this consultation.

Promoting compliance and notifying tax avoidance

5.12 We are proposing measures to promote compliance on the basis that they are likely to be cheap and simple to operate. We also support identifying actual or potential tax-avoidance schemes, including through notification. Such schemes are already in place in the UK and in other jurisdictions and appear to achieve the intended purpose. In our view, taxpayers and tax advisers who act in a responsible way should be prepared to comply with arrangements intended to identify potential tax avoidance, through notification or other requirements.

5.13 Early notification and identification will help to reduce costs and uncertainty for both taxpayers and the tax authority. While inspection checks of taxpayer records can be important in identifying arrangements that may constitute avoidance and therefore justify counteraction, there is evidence that there can be a significant time gap between a scheme first being used and the tax authority finding evidence of it. There may also be a time lag thereafter between the tax authority finding evidence of a scheme and being ready to counteract it effectively. We therefore do not consider that relying only on tax inspections to identify such schemes is likely to be sufficient.

5.14 Therefore, as with some other tax jurisdictions, we propose to introduce an obligation for tax-avoidance schemes to be notified. This would require anyone devising, selling or using such schemes to notify Revenue Scotland and to provide details within a set period of first offering them to a client. If the scheme is devised by the taxpayer, the date would relate to the point at which the taxpayer decided to use the scheme. It would also require any taxpayer using the scheme to quote the scheme number when submitting a tax declaration so that Revenue Scotland will know who is using the scheme.

Q18 If obligatory notification arrangements were included in the proposed Tax Management Bill, what do you think should be the main features? Are there any features of other similar schemes that you think should be avoided?

General Anti-Avoidance or Anti-Abuse Rule (GAAR)

5.15 As noted above, GAARs are intended to reduce avoidance both by preventing avoidance schemes through reducing the scope for relying on an interpretation of the law that is quite different from the intention of the Parliament, and by enabling a tax authority to counteract schemes which the authority believes are 'caught' by the GAAR. As the proposed UK GAAR - which the UK Government intends to introduce in the Finance Bill 2013 - will not apply to the devolved taxes, we need to consider making provision for a GAAR in the Tax Management Bill. We wish to consult about how such a rule should be framed and would operate.

5.16 The arguments for and against different approaches to setting up a statutory GAAR have been ventilated in the UK context in the report produced by Graham Aaronson QC and in subsequent consultation. Most recently, HMRC has consulted on draft legislative provisions for inclusion in the Finance Bill in 2013. We note that the UK Government's proposed GAAR is narrowly focused so as to avoid bringing within scope arrangements that might have a legitimate commercial objective or justification, on the basis that capturing such arrangements would be damaging for business in the UK. These are important issues where a balance has to be struck, and adequate safeguards included. We will wish to observe the progress and effectiveness of the intended UK legislation. We are also mindful of the fact that under existing constitutional arrangements, the UK's GAAR legislation would if enacted operate in Scotland in relation to all relevant non-devolved taxes. Taxpayers and their agents in Scotland will therefore become familiar with the operation of the UK GAAR.

5.17 We are clear that tax avoidance must be tackled effectively in Scotland, while not affecting arrangements that can reasonably be regarded as having a legitimate commercial objective or justification, since this could be regarded as unfair to taxpayers and could also damage Scotland's position as an attractive place to do business.

5.18 Against that background we are interested in respondents' views on the characteristics that a Scottish GAAR might have. A key issue is whether to draw a GAAR broadly, to include a wide range of arrangements that could be regarded as reducing or avoiding tax liability, or more narrowly to target schemes that are highly artificial and contrived and consequently are sometimes referred to as "abusive". The proposed UK GAAR would be more narrowly targeted. Among the benefits of a tightly-drawn GAAR are that such an approach is less likely to be seen as a disincentive to taxpayers, particularly business taxpayers, who may have a choice about whether to operate in a particular country; and that it provides greater certainty (that it will not "capture" legitimate tax planning activity). In favour of a widely-drawn scheme, it can be argued that arrangements that reflect the intention of those drafting and passing the legislation would stand, and that it is fair that arrangements that do not reflect these intentions should be in scope of the GAAR and so potentially liable to tax.

Q19 Of the two broad approaches - a GAAR targeted at highly-artificial and contrived abuse of tax legislation, or a more widely-drawn provision - which do you believe is likely to be more effective, and why?

5.19 Some jurisdictions require a taxpayer to seek and obtain prior clearance for unconventional arrangements designed to achieve a tax result or accept the risk that the tax authority will find that these unconventional arrangements are unacceptable and can be set aside for purposes of working out tax due. It can be argued that prior clearance is helpful in reducing uncertainty. However, it would probably be necessary to put in place appeals procedures, which might take time and reintroduce uncertainty. This could lead to significant administrative costs.

Q20 What advantages might a prior clearance rule offer? How might it be designed to provide maximum certainty at least cost?

5.20 A key feature of tackling avoidance is to make clear the policy intentions behind the relevant legislation, to make this information available in a way that is accessible to taxpayers and the tax authority, and also so that those adjudicating on disputes and appeals are able to refer to the information and to use it in forming conclusions. It is of course essential in all of this that we do not interfere with key legal principles.

Q21 How can the intentions of those drafting and passing the relevant legislation best be set out in a way that is useful to taxpayers, Revenue Scotland, and those adjudicating on disputes and appeals?

5.21 As noted above, an important element in the design of a GAAR is the nature of the test to be applied in deciding whether a transaction or series of transactions (an "arrangement") is "caught" by the provision. We take the view that an arrangement that has as a main or sole purpose, the achievement of a reduction in tax due should entitle Revenue Scotland to set aside such arrangements for the purposes of deciding the tax due and therefore apply the relevant tax legislation to the circumstances as though the arrangements had not been made. Tests that may be useful in deciding whether an arrangement is caught by the criterion suggested above include:

- Is the arrangement such as would not normally be employed for bona fide business purposes?

- Does the arrangement or part of it lack commercial substance, for example are there elements that cancel each other out?

- Has the arrangement created rights or obligations that would not normally be created by persons dealing at arm's length?

Q22 What tests do you think should be used to decide whether an arrangement is wholly or mainly intended to achieve a reduction in tax due?

5.22 Assuming a GAAR is put in place, and that it includes a test or tests of what appears to be its main purpose, Revenue Scotland will be responsible for deciding whether an arrangement falls within the ambit of the GAAR. A further question is whether there would be benefit in Revenue Scotland being able to draw on wider commercial expertise in deciding whether tests are met, and the arrangements put in place for appealing decisions of Revenue Scotland (see proposals at Chapter 6).

Q23 Do you see a role for external expertise in assessing tax arrangements to see whether they are "caught" by a GAAR, and if so what might that role be? What arrangements do you think should be put into place for appeals?

Counteraction

5.23 The third element of reducing tax avoidance is effective counteraction. A properly-functioning GAAR will assist in counteraction, since it would enable Revenue Scotland to proceed on the basis that it is able to set aside arrangements that meet the relevant criteria of being abusive or wholly or largely intended to avoid tax.

5.24 A tax authority may also wish to counteract tax avoidance through changes to relevant legislation, subject to Parliamentary scrutiny. Tackling avoidance effectively could involve making changes to tax legislation so that they apply immediately, rather than waiting for the normal annual cycle of taxation and spending legislation - for example to close a loophole in a case where the arrangements would not be caught by a GAAR, and where the potential loss of tax revenue was material. See Chapter 8 on accelerated tax changes.

5.25 In addition, situations may arise where significant tax avoidance, which in the view of Revenue Scotland is clearly contrary to the intent of the Parliament, is already under way or has already taken place. In such circumstances, it could be argued that it would be justifiable, in the public interest, to introduce legislation with retrospective effect in specific cases, subject to Parliamentary approval.

5.26 If Revenue Scotland takes the view that tax avoidance schemes may have crossed the boundary into tax evasion, for example by misrepresenting material information, then effective counteraction may include reporting the circumstances for criminal investigation and possibly criminal proceedings.

Chapter 6: Resolving Tax Disputes

Chapter summary

- We propose that the key priority for Revenue Scotland should be avoiding disputes on tax by giving clear information to taxpayers and agents and "getting it right first time".

- Where disputes do arise, we propose that a taxpayer must initially raise the matter with Revenue Scotland, which will be required to arrange an internal review to be carried out by a member of staff who had no involvement in the original assessment or other matter giving rise to the dispute, and who will carry out the review on an objective and fair basis.

- If the internal review does not resolve the dispute, we propose that a mediation should be considered as the next step to seek a resolution. However, this should not be mandatory and the taxpayer should have a right to appeal to a tribunal directly after the internal review or if mediation is unsuccessful. Settlement by mutual agreement can take place at any stage in the dispute resolution process.

- We have confirmed our intention to establish a new jurisdiction for the devolved taxes and set out options at paragraph 20 as to how these appeals might be heard prior to the transfer of the jurisdiction into the Scottish Tribunal System.

- We propose that Revenue Scotland should use learning from disputes to improve its approach and to publish summary information about disputes that have arisen and any improvement action taken as a result.

- Complaints about how the staff of Revenue Scotland and bodies to which it has delegated powers have behaved should be handled separately from disputes about a taxpayer's tax liability and in line with established practice for complaints against Scottish public bodies. We propose that Revenue Scotland should publish summary information about complaints and about the action it has taken as a result.

Introduction

6.1 It is inevitable that there will be times when taxpayers and Revenue Scotland have different opinions about the amount of tax due, the date on which it is due, a penalty imposed or about the handling of the process of determining the tax liability by Revenue Scotland or a body acting on its behalf. Disputes about process may include disputes about requests for information or inspection procedures, so may involve third parties as well as or in addition to the taxpayer. Disputes can be time-consuming and costly for both taxpayers and Revenue Scotland, so keeping them to a minimum and dealing with them quickly and effectively when they do arise are important priorities. Part I of this chapter makes proposals for managing and resolving disputes.

6.2 There are separate issues which arise when taxpayers or third parties wish to complain about what has been done or not done by Revenue Scotland or one or more members of its staff. Part II of this chapter discusses the separate process of handling complaints.

6.3 To avoid repetition, we will refer in this chapter to disputes with Revenue Scotland and take that to include disputes involving a body to which Revenue Scotland has delegated some of its powers - for instance, RoS or SEPA in relation to the collection of LBTT and Scottish Landfill Tax, respectively. We expect Revenue Scotland to publish the agreement it makes with any other body to which it delegates powers, and we would expect that agreement to make clear what the responsibilities of Revenue Scotland and the other body would be on the resolution of disputes.

Part I: Resolving tax disputes

6.4 Tax disputes arise when a tax authority and a taxpayer have differing views on how much tax should be paid, when it should be paid and/or whether the taxpayer should be liable to pay a penalty and/or interest and potentially also with how Revenue Scotland has reached its decision. We believe that the first priority for Revenue Scotland should be to ensure that the guidance it provides, its procedures for dealing with taxpayers, and its collection mechanisms are easy to understand, accurate and consistent so that disputes are kept to a minimum. When disputes do arise, it is very important that they should be resolved as quickly, effectively and fairly as possible. This is of benefit both to Revenue Scotland and to the taxpayer, minimising the cost, delay and distress that disputes can involve.

6.5 We propose that the management of tax disputes should be based on:

- Avoiding disputes;

- Early resolution; and

- Applying the learning for future decisions.

Avoiding disputes

6.6 To help avoid tax disputes, Revenue Scotland must ensure that the process of tax collection is efficient, effective and as clear to the taxpayer as possible. The focus must be on "getting it right first time" with accurate calculations and quick, consistent and high-quality decisions at every stage.

6.7 As set out in Chapter 4 on "Ensuring tax compliance", we intend that Revenue Scotland should publish accessible, plain-English guidance about the way the tax rules work and its processes and methodology; it should also make direct references to the letter of the law.

6.8 We also intend that where Revenue Scotland disputes the view of the taxpayer that it should set out clearly in correspondence its reason for doing so. This will help the taxpayer to understand the position of Revenue Scotland and inform his/ her subsequent approach.

Q24 What are your views on the proposals for avoiding disputes? What else could Revenue Scotland do to avoid disputes arising in the first place?

Early resolution

6.9 In spite of the best efforts to avoid disputes, we know that they will sometimes arise. We are keen to ensure that disputes can be resolved as early as possible and we recognise that, in addition to the formal stages set out in this section, there are opportunities for settlement at any stage in discussions between Revenue Scotland and the taxpayer. We propose that Revenue Scotland should set out in guidance, in due course, the specific rules that will govern and provide assurance about settlements.

Internal review

6.10 We propose that the first stage of the process to resolve a dispute should be for the taxpayer to notify Revenue Scotland, which would then have to conduct an internal review. Such a review would be conducted by a member of Revenue Scotland staff who had no involvement in the original assessment or other matter giving rise to the dispute, and who will conduct the review on an objective and fair basis. In line with the requirement to make the tax administration process as clear as possible to taxpayers, we propose that Revenue Scotland should publish the guidance which reviewers will follow and the time limits which will apply for requesting and conducting internal reviews. At the end of the review process, the taxpayer will receive a letter from the reviewer outlining his or her decision and the reasons for this.

6.11 The purpose of the internal review is to provide an early and swift opportunity for the tax decision to be reviewed and amended if this is appropriate. The outcome of the review could be to uphold or reject in whole or in part the original decision made, as well as to modify it and/or to seek further information from the decision-maker and taxpayer. It is possible that the reviewer will wish to meet the taxpayer to verify facts and options as part of the review process and to ensure that the taxpayer's point of view and any information the taxpayer holds have been fully understood. It is intended that during the review, as at each subsequent stage in the dispute resolution process, there will be scope for the taxpayer and Revenue Scotland to reach an appropriate settlement.

6.12 We suggest that the internal review should be a mandatory step for Revenue Scotland where taxpayers wish to challenge a decision. This represents a significant resource investment for Revenue Scotland and reflects our commitment to early resolution and our conviction that this must begin as soon as possible. Ideally dialogue will have begun well in advance of the review. Publishing information about the proportion of disputes resolved at this stage will help focus attention on achieving early resolution. However, where this is not the case, the internal review will also aid preparation for the next steps of dispute resolution.

Q25 What are your views on the proposed arrangements for reviews and / or the appropriate duration for the period within which the review must be concluded?

Disputing the opinion of Revenue Scotland

6.13 Where a taxpayer wishes to challenge the outcome of an internal review which upholds the decision, or modifies it, but not to the satisfaction of the taxpayer, the next stage of the process would be for the taxpayer to appeal Revenue Scotland's decision. At the present time, appeals against UK taxes are made under UK tax jurisdiction which sets out the procedural rules about what may/may not be appealed and the procedures that will apply. Appeals may be made by the taxpayer or by HMRC to the First Tier Tax Chamber of the UK Tribunal. Appeals against Tax Chamber's decisions are heard by the Tax and Chancery Chamber of the UK Upper Tribunal with onward appeal possible, on points of law, to the Inner House of the Court of Session and thereafter, the UK Supreme Court. Taxpayers may choose to appoint counsel or to represent themselves at the Tribunal. We understand that taxpayers appealing are not usually eligible for Legal Aid. Unless changes are agreed to existing arrangements, the UK Tax Tribunal would not automatically hear appeal cases arising from devolved taxes.

6.14 We consider that it is important that there should be a robust process of appeal to a tribunal for the devolved taxes. This should allow for an initial appeal and for further consideration on a point of law if appropriate, in line with broader justice policy. However, we know that the handling of appeals through what might be thought of as the "traditional" route - via a tribunal - can be time-consuming and expensive for all those involved. We have already demonstrated the importance we attach to providing more informal routes to dispute resolution, for example in the introduction and passage of the Arbitration (Scotland) Act 2010. In setting out our approach to the resolution of tax disputes, we consider that there may be an important role for mediation. This may be used after the internal review, as discussed below. However, it might also be used, where deemed appropriate, at any stage of the dispute resolution process including prior to the confirmation of the tax assessment.

6.15 Mediation already plays a role in resolution of tax disputes in a number of jurisdictions around the world. We understand that international experience, including the feedback from recent pilot initiatives conducted by HMRC, has shown that mediation can be a much quicker, cheaper and more effective approach in resolving many tax disputes than through more formal judicial procedures. We are therefore keen to see mediation (or other non-judicial approaches) promoted as the first choice route for resolving an appeal in most cases. This section discusses the handling of appeals through both mediation and tribunals.

Mediation

6.16 Mediation is a confidential process enabling parties in dispute to reach a solution which they form and agree themselves. Mediation is facilitated by a trained and objective third party who seeks to enable the disputing parties to reach an agreed position. The mediator may not impose a solution. In the tax context, we would expect that an agreement reached would be final and underpinned by appropriate rules on settlement.

6.17 Mediation works as a voluntary process so we do not believe it would be appropriate to make it a mandatory step in the process of resolving a dispute. Instead, we propose that Revenue Scotland should adopt mediation as its own preferred approach to resolving disputes that cannot be resolved after dialogue and internal review. Revenue Scotland would provide clear, simple information for taxpayers about the mediation process and would, over time, build up and publish information about the relative costs, timescales and rates of satisfaction with the outcome of appeals resolved through mediation or through a tribunal. The aim will be for taxpayers and their agents to be able to make an informed decision about whether mediation is the best approach. If, after considering this information, the taxpayer wishes to pursue an appeal to the tribunal directly after the internal review then he or she should be able to do this. However, mediation may, in some cases, not lead to an agreement and the taxpayer should, in those cases, also have the right to take an appeal to a tribunal.

Q26 What are your views on the proposal to encourage the voluntary use of mediation? Should we be considering any other approaches to dispute resolution?

Operation of a devolved tax jurisdiction

6.18 Where a mediation is unsuccessful or where an appellant determines that he/she does not wish to use this route, it remains important there is a clear route of appeal. We propose to introduce a new jurisdiction for the devolved taxes, which will set out in detail the situations in which appeals are envisaged. These will be broadly in line with the instances of and sanctions for non-compliance discussed in chapters 4 and 5. The jurisdiction for the devolved taxes will be established in advance of 1 April 2015.

6.19 The devolved tax jurisdiction will provide the authority for appeals against the devolved taxes: it is also necessary to establish the appropriate mechanism for hearing the appeals that will arise under this jurisdiction. Scottish Ministers have set out their clear aspiration for full fiscal responsibility. If Scotland were to take on responsibility for a wider set of taxes, we would want to establish a broader tax jurisdiction for inclusion in the proposed Scottish Tribunal System. This jurisdiction would cover all the devolved taxes for which the Scottish Parliament might legislate. This would also serve as a platform should any future constitutional change lead to a further expansion of the Scottish taxation system.

6.20 Should it not be possible for the new devolved taxes jurisdiction to be included in the newly formed Scottish Tribunals System immediately after the devolved taxes come into effect in April 2015 then we will have to consider other transitional options for where cases raised might be heard. Under all of the following options, it is envisaged that appeals against the devolved taxes would be heard in Scotland under the devolved tax jurisdiction.

Options:

a) The UK Chambers (in the First Tier and Upper Tribunal) of the UK Tribunal could be asked to take appeals against devolved taxes for the period until it is appropriate to move the jurisdiction into the Scottish Tribunal System.

This option has the merit of drawing on the existing expertise of Scottish panel members familiar with tax disputes. It would also minimise the number of transfers and changes between systems. It would require the agreement of the senior judiciary of the UK Tribunals and of its administration, the HM Courts and Tribunals Service (HMCTS) and would require a formal agreement on matters such as the management and prioritisation of the caseload and costs associated with this service.

b) Refer appeals against the devolved Scottish taxes to existing devolved tribunals which would require the extension of their function to include the new devolved taxes jurisdiction.

Existing devolved tribunals such as the Lands Tribunal for Scotland do not focus on tax but may have relevant expertise and are based in Scotland. Asking an existing tribunal to take on a new jurisdiction could have implications for workload; it would take time for expertise in devolved tax matters to be built up and potentially require the recruitment of additional members with the required specialist experience.

c) Refer appeals against the devolved taxes to the Scottish court system.

The Scottish judiciary has relevant knowledge and expertise. There are, however, risks of loss of the holistic approach to tax that can be provided by a dedicated Tax Tribunal and of increasing workload of busy courts. This option would not preclude the need to establish a new jurisdiction for the devolved taxes.

Q27 What do you think would be the best option for dealing with appeals to a tribunal until a tax jurisdiction is established in the Scottish Tribunal System?

6.21 Whichever of these options is selected, there will be costs associated with appeals. There will also be costs for mediation, especially if there is a requirement to engage mediators independent of Revenue Scotland. (We note that in some jurisdictions in-house mediators are trained by the tax authority, with only the more complex cases being referred to external mediators: in-house mediators would be required to adhere to professional standards of conduct and adopt a position of neutrality.) We are minded to maintain the existing principle of "loser pays costs" for tribunal hearings and to explore options for sharing costs for mediation and use of in-house mediators. We would, however, welcome your views.

Q28 How should the costs of mediation or tribunal appeals be met or shared?

Applying the learning for future decisions

6.22 Regardless of whether a dispute is resolved at internal review, mediation or a tribunal, or indeed at a settlement between or during one of the formal processes, we believe there is an important final step for Revenue Scotland to take to ensure that it learns from disputes. Revenue Scotland should use its experience of disputes to continue to improve its information, guidance, procedures and staff training to prevent similar disputes arising in future and/ or to ensure that they are handled as effectively as possible when they do arise.

6.23 The details of any individual dispute may well be confidential, but we consider that Revenue Scotland should publish in its annual report a summary statement covering at least:

- key statistics on the numbers and nature of disputes that arose during the year including the time taken to resolve them, and for those that have been resolved, whether this was following internal review, mediation or tribunal; and

- the main points of learning which Revenue Scotland has drawn from dealing with the disputes during the year and what action it intends to take as a result.

Q29 What are your views on how Revenue Scotland could best demonstrate that it is learning from the resolution of disputes?

Part II - Managing complaints

6.24 Complaints arise when taxpayers are unhappy with the way that Revenue Scotland or individual members of its staff have behaved. Complaints are not therefore issues about the substantive decisions made about tax but about how the handling and communication of these decisions has been managed. Under existing arrangements for UK taxes, complaints about handling by HMRC are made to HMRC in the first instance and, where unresolved, are then referred to the Adjudicator's Office. Complaints about how HMRC has investigated are considered by the Police Complaints Commissioner for Scotland[2] and the Independent Police Complaints Commission (England and Wales). These arrangements will continue to apply for taxes reserved to the UK Government.

6.25 We propose that the handling of complaints relating to the administration of the devolved taxes should be aligned to the established approach for the management of complaints about devolved services in Scotland. This has three key stages:

1. As with disputes, the best approach is to avoid complaints arising. A public body can do this by, amongst other things, providing clear statements of customer service standards and providing good-quality guidance and training for staff on what is expected of them.

2. When complaints do arise, they should be raised directly with the body concerned. The body concerned should have a formal published complaints procedure which is easily available and provides for appropriate review at a senior level if the person complaining is dissatisfied with the initial response.

3. Where the complainant remains dissatisfied after going through the complaints process for the body concerned, he or she may then refer the complaint to the Scottish Public Services Ombudsman (SPSO), or, in the case of complaints about criminal investigations, to the Police Complaints Commissioner for Scotland.

6.26 Under the approach envisaged, Revenue Scotland will provide training and guidance for all staff engaged in management of tax matters. The Scottish Government will ask the Scottish Parliament to agree to add Revenue Scotland to the schedule of organisations overseen by the SPSO, which already oversees RoS and SEPA, and to the list of bodies for which the new Police Investigations and Review Commissioner will have oversight. We would expect that a complaint about handling of tax matters by staff in RoS, SEPA or any other public body carrying out tax administration work on behalf of Revenue Scotland in future should be handled using the complaints procedures within the organisation and, if the complainant remained dissatisfied, be referred to the SPSO or the PIRC. We would, however, expect that the body concerned would notify Revenue Scotland that a complaint relating to a tax matter had arisen and notify them of the outcome of the outcome of the complaint at each stage until it was resolved.

6.27 As with disputes, we consider that it is important for public bodies to learn from the handling of complaints so we would expect Revenue Scotland, RoS, SEPA and any other body to which Revenue Scotland has delegated powers to conduct a regular review of complaints and identify areas for improvement in information, guidance, procedures or staff training that arise from these. Again, we would wish to see Revenue Scotland publish in its annual report summary information about complaints and how they have been handled, and what learning it has taken from the handling of complaints during the year.

Q30 What are your views on the proposed approach to the handling of complaints?

Chapter 7: Treatment of Taxpayer Information

Chapter summary

- Revenue Scotland should handle personal information it receives with care and any disclosure must be authorised.

- We discuss the role of taxpayer information in combating illegal behaviours and tax avoidance and we propose that Revenue Scotland should be empowered to share some information with other public bodies when this is in the public interest.

- The Scotland Act 2012 requires the Scottish Government to share specific information with HMRC; there are also broader EU and international obligations that will oblige and permit sharing of information in certain circumstances.

- We seek views on the proposed approach to public interest disclosure (whistle-blowing) and Freedom of Information.

Introduction

7.1 Revenue Scotland and the bodies to which it delegates its powers to collect specific taxes will receive and hold a wide range of information from taxpayers and their agents. This chapter considers key points for a legislative framework covering the circumstances in which Revenue Scotland might share that information and with whom.

7.2 In considering the approach to management of taxpayer information by Revenue Scotland, it is helpful to be aware of the framework that currently applies within the UK and precedents from abroad.

Treatment of taxpayer information in the UK

7.3 The UK tax code provides that no official can disclose information which is held by HMRC as the UK tax authority in connection with a function of HMRC. The law allows officials to disclose information without breaching this rule in certain circumstances, including:

- when the disclosure is made for the purposes of a function of Revenue and Customs - for example, if an official is making enquiries about a taxpayer with a third party, disclosure may be necessary if the functions of HMRC are to be fulfilled effectively;

- When the disclosure is made as part of a criminal investigation and civil or criminal proceedings;

- when information is requested by the National Audit Office, a police inspectorate or the Police Complaints Commissioners[3];

- where it is in the public interest to do so - which would include preventing or detecting crime, protecting public health, and meeting the UK's international obligations;

- where a specific information-sharing gateway allows sharing of the type of information in question, such as the one recently added to allow HMRC to share certain information with the Scottish Government; and

- where EU law or an international obligation requires sharing of information provided by taxpayers.

7.4 In addition the Public Interest Disclosure Act 1998 enables an official to make a "public interest disclosure", often called "whistle-blowing", where that person has reasonable grounds to believe that there is malpractice or criminal activity of some kind, and the disclosure will help to detect or prevent it.

7.5 The UK Freedom of Information Act 2000 allows HMRC as the UK tax authority to refuse to release information sought under the Freedom of Information Act when that would identify or could be used to identify a taxpayer.

Alternative approaches

7.6 The existing UK legal framework is based on an underlying approach where taxpayer information is confidential. However, the assumption that all taxpayer information is wholly confidential is not universal. In Ireland, the names of taxpayers who have not paid their tax within a defined period from the tax point are published. Countries such as Norway and Sweden either publish tax declarations made by individual taxpayers, or make them available on request. In Norway the information published includes the name of the taxpayer, their postal address, date of birth, their wealth and income in that tax year, and how much tax they paid. Sweden has a slightly more restricted system. Although any Swedish citizen can see the declared earnings of another Swedish citizen, they have to either contact the tax information office or visit specified tax offices to obtain on-line access. These measures are considered to promote tax compliance in these countries.

The choice for Scotland

7.7 As we set out in our publication "Identity Management and Privacy Principles" in May 2011, we want to handle with care personal information we receive. Consequently our position is that Revenue Scotland should never disclose information about a taxpayer that might lead to identity theft or personal harm. While we are keen to promote compliance and tackle avoidance, we are not of the view that publication of information from LBTT and/or Scottish Landfill Tax returns would significantly enhance compliance with these taxes. We therefore propose to maintain the principle that taxpayer information should be protected and shared only for defined purposes and with appropriate authorisation. The proposed purposes for information sharing are discussed below. We propose to include in the Tax Management Bill a statutory provision forbidding disclosure of information by Revenue Scotland in circumstances other than those described.

Q31 What are your views on the proposed statutory provision forbidding disclosure of information held by Revenue Scotland? Should there be criminal sanctions if information is disclosed?

Information sharing

Sharing Information within Scotland and the rest of the UK

7.8 The 2012 Act requires office-holders in the Scottish Administration to share certain taxpayer information on request with HMRC. In practice, this requirement will be placed on Revenue Scotland as the Tax Authority, and on the bodies to which it delegates powers. How this will operate in practice will be set out in a separate agreement between the Scottish and UK Governments. The 2012 Act also allows HMRC to share certain information with Revenue Scotland.

7.9 More generally, Revenue Scotland will need to handle with due care confidential information it receives. However, it will be appropriate in specific circumstances for information to be shared by Revenue Scotland with other public bodies in Scotland or the rest of the UK. We propose that sharing should be permissible:

- to help in assessing or collecting taxes or other charges etc payable to a public body; and

- to help to prevent or detect actual or suspected crime or the apprehension or prosecution of offenders.

Outside the UK

7.10 Revenue Scotland's role has a potential international dimension, including under existing constitutional arrangements. As a tax authority within the UK, Revenue Scotland will be subject to some EU and international obligations.

EU and International obligations

7.11 Revenue Scotland will be obliged by existing law to provide information to other parties outside the UK in two situations. These requirements override any confidentiality obligations laid on Revenue Scotland through Scottish or UK legislation.

7.12 Firstly, as a tax authority within the European Union, Revenue Scotland must comply with the Mutual Assistance and Recovery and the Mutual Co-operation Directives. These EU directives will require Revenue Scotland to supply relevant information that it holds via HMRC to another Member State if that State seeks information for which it is entitled to ask.

7.13 Secondly, Revenue Scotland must share information with an overseas tax authority if there is a Double Taxation Treaty or Tax Information Exchange Agreement with the UK and that treaty requires or enables information sharing between the two states. These treaties have existing effect in Scots law without new legislation being necessary for that purpose.

Wider international issues

7.14 In developing proposals about Revenue Scotland and other issues in this consultation paper, we have benefited from helpful dialogue with tax authorities in other countries as well as with HMRC. In future, we believe that Scotland will continue to benefit from interactions with other tax authorities. Informal exchanges of information in both directions is a vital part of building up strategic understanding, sharing and developing good practice, and improving performance. Such information sharing would not involve information that is taxpayer specific. We propose that Revenue Scotland should have a general power to be able to share information with other tax authorities where it is in the public interest, excluding taxpayer-specific information.

7.15 In time, we expect that Revenue Scotland will become responsible for more taxes in Scotland, and potentially for all of them. If taxes are added in relation to which it is likely to be in the public interest for Revenue Scotland to be able to share taxpayer-specific information with other tax authorities, we believe that Revenue Scotland should have the power to enable it to do that. We therefore propose to include a provision that would give the Scottish Government the power, with the agreement of the Parliament, to extend Revenue Scotland's power to share information about individual taxpayers where this related to a particular tax for which Revenue Scotland was responsible and where sharing was in the public interest.

Q32 Do you agree that Revenue Scotland should be empowered to share information with other public bodies and other tax authorities internationally for the purposes outlined above? Do you think there are other purposes for which information should be shared?

Whistle-blowing

7.16 There is already a framework in Scotland (the Public Interest Disclosure Act 1998 and the Civil Service Code) that covers public interest disclosure or "whistle-blowing" and sets out what a public official should do if they suspect that there is wrongdoing. We believe this works well and therefore propose that this framework should apply to Revenue Scotland also.

Q33 Do you agree that the existing framework for public interest disclosure, described at 7.16, is sufficient for Revenue Scotland?

Freedom of Information

7.17 Revenue Scotland, as a public body, will be subject to the Freedom of Information (Scotland) Act 2002 (FOISA): the Scottish Government will ask the Scottish Parliament to agree to add Revenue Scotland to the schedule of Scottish Public Authorities at Schedule 1 to the Act, in which RoS and SEPA are already listed. If Scotland decides to adopt broadly the same taxpayer confidentiality approach as applies in the UK at present, there is a policy question about whether certain information held by Revenue Scotland and the bodies to which it has delegated powers should be partly excluded from the scope of FOISA and if so what information should not be disclosable. As noted above, HMRC as the UK tax authority is able under the UK Freedom of Information Act 2000 to refuse to release information sought under the Act when that would identify or could be used to identify a taxpayer.

7.18 If Revenue Scotland were to be subject to similar taxpayer confidentiality obligations as HMRC then it would seem reasonable for there to be a similar type of exemption from FOISA.

Q34 Do you agree that certain information held by Revenue Scotland and bodies to which it has delegated powers should be exempt from Freedom of Information legislation in order to prevent disclosure of information that would identify or could be used to identify a taxpayer?

Chapter 8: Accelerated Tax Changes

Chapter summary

- 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.

- We propose 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 but also to 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.

Tax policy making

8.1 Our approach to tax policy making will be founded on systematic, planned engagement and consultation. The principle to be followed is that changes to the tax system in Scotland will be subject to consultation before they are introduced. There would be discussion of principles and consultation on draft legislation before the necessary Parliamentary scrutiny and the eventual passing of tax changes into law. Even where for reasons of urgency it is not possible to consult on the policy aspects of a proposal, the norm will be to consult on the detail. Through the Tax Consultation Forum, which will first meet in early 2013, the Cabinet Secretary will take soundings on priorities for the economic and social wellbeing of Scotland and these will inform his thinking on all areas of the tax system.

8.2 However, in every tax jurisdiction situations arise where changes may need to be made to the tax system without advance consultation. An example would be where there is a risk that simply discussing a change could distort commercial activity or where a 'loophole' needs to be closed urgently and without prior discussion that might encourage others to exploit it. Such changes may also include decisions on tax rates and thresholds. Some arrangement for introducing tax changes quickly is a feature of the tax systems in many other jurisdictions and we believe it would be important to allow for this in Scotland.

Existing arrangements in the UK - provisional collection of taxes

8.3 The UK term "provisional collection of taxes" derives from the UK Provisional Collection of Taxes Acts, 1913 and 1968. The term is used in many English-speaking tax jurisdictions. The UK regime works with the annual Budget and Finance Bill cycle. It allows the Chancellor of the Exchequer to vary UK tax rates and thresholds before Finance Bills are enacted (and indeed before the Bill is introduced to the UK Parliament). The measures are given provisional legal effect by resolutions of the House of Commons, but then depend for their effectiveness on the Commons subsequently voting into law the relevant parts of the Finance Bill.

8.4 Such provisional arrangements are essential in the UK because Income and Corporation taxes are nominally temporary and require the UK Parliament to continue them for each tax year in the annual Finance Bill. The convention at Westminster is that the Finance Bill is not enacted until after the tax year has begun on 6 April, hence the Income and Corporation Taxes are "provisionally collected" each year by virtue of Parliamentary resolutions, confirmed in due course by the Finance Act. We do not envisage devolved taxes operating on this basis.

8.5 As well as being used to continue nominally temporary taxes, Westminster's provisional collection of taxes regime enables the UK Government to introduce changes to tax rates and amend tax thresholds prior to the Finance Bill receiving Royal Assent, subject to the House of Commons approving these measures.

8.6 The UK tax code also includes specific powers allowing UK Ministers to close loopholes in particular tax statutes, including in some cases with retrospective effect.

Handling in Scotland

8.7 Currently the Scottish Government and the Scottish Parliament are discussing how the Parliament will handle the Budget implications of the extra powers devolved by the 2012 Act. These discussions include how and when tax provisions will be debated and, where necessary, passed into law.

8.8 The existing Budget Bill process in the Scottish Parliament provides authority for proposed spending in the following financial year and normally concludes in March of each year when the Budget Bill receives Royal Assent. If it is decided that tax measures should form part of the existing annual Budget Bill, then the current timetable which sees the Budget Act in place before the start of the tax year should mean that there would be no immediate need to rely on an equivalent to the UK 'provisional collection'. However, even if accelerated arrangements may not be needed to change rates and thresholds, other situations may arise where, for example, a loophole needs to be closed quickly through legislation, with Parliamentary scrutiny and debate thereafter. It may also be necessary in future to make rate changes at short notice. We therefore believe that it would be wise to put in place provisions that would enable legislation to be introduced swiftly in such situations.

Features of an accelerated tax changes approach

8.9 We propose to include in the Tax Management Bill a legislative mechanism for "accelerated tax changes". In outlining our thinking in this document, we wish to encourage comments on these proposals, which will be for the Parliament to consider in due course.

8.10 We propose that an accelerated tax changes regime should include the following features:

- The accelerated tax changes regime should apply to all devolved taxes that will be covered by the framework of the Tax Management Bill. This mirrors provisional collection legislation in other jurisdictions, although the UK's applies only to named taxes;

- The regime should enable accelerated changes to tax rates and thresholds and to other tax changes (e.g. legislation to stop tax-avoidance schemes);

- The regime should use statutory instruments rather than Parliamentary resolutions (as at Westminster). We propose that a form of the "provisional affirmative" procedure, allowing legislation to be made and brought into force at the point of announcement, would be justified. Any instrument made under the proposed powers would require affirmation by Parliament include a "sunset clause" requiring primary legislation to confirm the provisional changes within a given period of time. We expect that the Parliament would have views on an appropriate timetable for these statutory instruments and we would wish to discuss this with the Parliamentary authorities;

- If a statutory instrument introduced under the regime fails to achieve Parliamentary approval, any tax that has been paid as a result of the measure would be refunded;

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

Q35 What are your views on the proposals for an accelerated tax changes regime?

Chapter 9: How to respond

- This consultation is your opportunity to shape the provisions of a Tax Management Bill to be introduced into the Scottish Parliament in autumn 2013.

- Responses should be submitted by Friday 12 April 2013.

- It would be helpful to have your response by email. You can email your response to the mailbox: tm@scotland.gsi.gov.uk

- We are, of course, happy to receive written submissions too.

- Please ensure that you send a copy of your respondent information form with your response.

Written comments

We are inviting written responses to this consultation paper to be received by e-mail or by post no later than Friday 12 April 2013. Please send your response, along with the completed Respondent Information Form (see 'Handling your Response' below) by email to: tm@scotland.gsi.gov.uk.

If need be, you can telephone Freephone 0800 77 1234 to find out where your nearest public internet access point is.

If you wish to send a hard copy of your response, please send it to:

Fiscal Responsibility Division
Scottish Government
Area 3B South
Victoria Quay
Edinburgh
EH6 6QQ

We would be grateful if you would use the consultation questionnaire provided or would clearly indicate in your response which questions or parts of the consultation paper you are responding to, as this will aid our analysis of the responses received.

Handling your response

We need to know how you wish your response to be handled and, in particular, whether you are happy for your response to be made public. Please ensure that you send a copy of your respondent information form with any responses so that we have your details and know if you are happy for your response to be made publically available.

If you ask for your response not to be published, we will regard it as confidential and treat it accordingly. All respondents should be aware that the Scottish Government is subject to the provisions of the Freedom of Information (Scotland) Act 2002 and would therefore have to consider any request made to it under the Act for information relating to responses made to this consultation exercise.

Next steps

If you tell us we can make your response public, we will put it in the Scottish Government Library and on the Scottish Government consultation web pages. We will check all responses where agreement to publish has been given for any wording that might be harmful to others before putting them in the library or on the website. If you would like to see the responses please contact the Scottish Government Library on 0131 244 4565. Responses can be copied and sent to you, but a charge may be made for this service.

What happens next?

Following the closing date, all responses will be analysed and considered along with any other available evidence to help us reach a decision about the finalised Bill. We will issue a report on this consultation process which will be published on the Scottish Government's website at:

http://www.scotland.gov.uk/Publications/Recent

Comments and complaints

If you have any comments about how this consultation exercise has been conducted, please send them to:

Fiscal Responsibility Division
Scottish Government
Area 3B South
Victoria Quay
Edinburgh
EH6 6QQ

Scottish Government consultations

This consultation, and all other Scottish Government consultation exercises, can be viewed on-line on the consultation web pages of the Scottish Government website at: www.scotland.gov.uk/consultations

The Scottish Government has an e-mail alert system for consultations. This system, called SEconsult, allows individuals and organisations to register and receive a weekly email with details of all new consultations (including web links). SEconsult complements, but in no way replaces, Scottish Government distribution lists. It is designed to allow people with an interest to keep up to date with all Scottish Government consultation activity. You can register at SEconsult: http://www.scotland.gov.uk/consultations/seconsult.aspx

Appendix 1 : Respondent Information Form

Download the Respondent Information Form word document from the Scottish Government website:

http://www.scotland.gov.uk/Publications/2012/12/5404/downloads

Appendix 2: Draft Partial Equalities Assessment

While the main purpose of this Equalities Impact Assessment (EQIA) on the proposed implementation of a Tax Management Bill for Scotland is to identify any potential adverse impact, it also offers the opportunity to consider how this work can better promote equality of opportunity and good relations.

The public sector equality duty requires the Scottish Government to pay due regard to the need to:

- eliminate discrimination, victimisation, harassment or other unlawful conduct that is prohibited under the Equality Act 2010;

- advance equality of opportunity between people who share a protected characteristic and those who do not; and

- foster good relations between people who share a relevant protected characteristic.

These three requirements apply across the "protected characteristics" of age; disability; gender reassignment; pregnancy and maternity; race; religion and belief; sex and sexual orientation.

In effect, this duty requires that equality considerations are integrated into all the functions and policies of Scottish Government Directorates and Agencies. The Equalities Impact Assessment (EQIA) enables us to consider how our activities, functions, strategies, programmes and services or processes - referred to as our policies - may impact, either positively or negatively, on different sectors of the population in different ways.

We are now requesting comments on this partial EQIA. The comments received will be used to complete the full assessment and to determine if any further work in this area is needed.

What is the purpose of the proposed policy (or changes to be made to the policy)?

Currently all UK taxes other than local taxes (Council Tax and Non-Domestic Rates) are managed in Scotland by HM Revenue & Customs (HMRC). From April 2015, under the terms of the Scotland Act 2012, two existing UK taxes - Stamp Duty Land Tax and Landfill Tax - will cease to have effect in Scotland. The Scottish Government proposes to replace these taxes with Land and Buildings Transaction Tax (LBTT) and a Scottish Landfill Tax.

It also proposes that when - subject to the approval of the Scottish Parliament - these devolved taxes come into effect in April 2015, they will be administered by a new tax authority, Revenue Scotland, responsible for Scotland's devolved taxes. Primary legislation is needed to establish Revenue Scotland and to establish a framework of responsibilities and powers within which the devolved taxes will be managed effectively and efficiently. It is further proposed that Revenue Scotland should be able to delegate some of its powers to other bodies. The Scottish Government proposes that the power to delegate should be exercised to give Registers of Scotland (RoS) responsibility for collecting LBTT, and the Scottish Environment Protection Agency (SEPA) responsibility for collecting the Scottish Landfill Tax.

The Scottish Government therefore intends to bring forward a Tax Management Bill for consideration by the Scottish Parliament to enable the new tax arrangements, including Revenue Scotland, to be put in place for an April 2015 commencement date. The consultation on Tax Management is a key stage in this process prior to the Bill being prepared. The Scottish Government has introduced a Bill to establish LBTT and proposes to introduce a Bill to establish a Scottish Landfill Tax.

Who is affected by the policy or who is intended to benefit from the proposed policy and how?

Any person or company who will need to pay either or both of the devolved taxes from 1 April 2015 will be affected by the policy. In practice, only companies or other corporate bodies will pay Scottish Landfill Tax, and equality duty questions should not therefore arise. Individuals will pay LBTT when they buy land or buildings in Scotland or enter into a lease on non-residential property, and the value of the transaction exceeds the zero rate band for the tax, and the transaction is not exempt or subject to full relief. The potential impact of LBTT as regards equality duties is explored in the EQIA associated with the LBTT Bill, introduced to the Scottish Parliament on 29 November 2012. The Tax Management arrangements relate to how this and other devolved taxes will be administered.

The benefit (of tax receipts) will flow to the Scottish Government and will contribute to the Scottish budget, so supporting a range of public programmes.

How have you, or will you, put the policy into practice, and who is or will be responsible for delivering it?

The Scottish Government is proposing to legislate to set up Revenue Scotland and to put the policy into practice by managing the devolved taxes. This will include the power to delegate some of its powers to other public bodies. The consultation paper sets out these proposals.

The consultation discusses: the remit of Revenue Scotland; its powers; the obligations of taxpayers; arrangements for ensuring tax compliance; tackling tax avoidance; resolving tax disputes; and treatment of taxpayer information.

How does the policy fit into our wider or related policy initiatives?

The effective and efficient management of the devolved taxes will enable the Scottish Government to raise through taxation broadly the same level of income as is currently raised in Scotland through SDLT and UK Landfill Tax, and which will be withdrawn from April 2015.

Do you have a set budget?

Estimated costs for setting up and running Revenue Scotland are set out in the Financial Memorandum associated with the LBTT Bill, which is published on the Parliament's website. The estimated set up costs relating to both the devolved taxes is £2,530,000 between 2013 and March 2015 and estimated annual running costs are £2,836,000, both at 2012 prices.

Age

Evidence - We currently have no information to suggest that the proposals set out in the Tax Management consultation document will have a differential impact on older or younger people. Under the proposals, taxpayers will be required to do certain things, for example tell Revenue Scotland if they believe they have to pay tax and submit a tax declaration on time. Scottish taxpayers are already obliged to comply with similar rules as UK taxpayers. We will look carefully to see if there are existing statutory or administrative provisions at UK level which bear on age-related issues relating to tax. If we identify such rules, we will seek to replicate their effect in relation to the devolved taxes. We would be glad to receive responses to the consultation paper from people who are aware of such rules.

Disability

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Gender

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Sexual Orientation

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Race

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Religion and Belief

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Gender reassignment

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Pregnancy and maternity

Evidence - We currently have no information to suggest that the proposed implementation of a Tax Management Act will have any significant impact on people who have this protected characteristic.

Consultation - to be added following this consultation

Q36: Do you have any comments on the Draft Partial Equalities Impact Assessment?

Appendix 3: Draft Partial Business and Regulatory Impact Assessment

Title of Proposal

Tax Management Bill

Purpose and intended effect

Background

Currently all UK taxes other than local taxes (Council Tax and Non-Domestic Rates) are managed in Scotland by HM Revenue & Customs (HMRC). From April 2015, under the terms of the Scotland Act 2012, two existing UK taxes - Stamp Duty Land Tax and Landfill Tax - will be disapplied in Scotland. The Scottish Government proposes to replace these taxes with Land and Buildings Transaction Tax (LBTT) and a Scottish Landfill Tax.

It also proposes that when - subject to the approval of the Scottish Parliament - these devolved taxes come into effect in April 2015, they will be administered by a new tax authority, Revenue Scotland, responsible for Scotland's devolved taxes. Primary legislation is needed to establish Revenue Scotland and to establish a framework of responsibilities and powers within which the devolved taxes will be managed effectively and efficiently. It is further proposed that Revenue Scotland should be able to delegate some of its powers to other bodies. The Scottish Government proposes that the power to delegate should be exercised to give Registers of Scotland (RoS) responsibility for collecting LBTT, and the Scottish Environment Protection Agency (SEPA) responsibility for collecting the Scottish Landfill Tax.

The Scottish Government therefore intends to bring forward a Tax Management Bill for consideration by the Scottish Parliament to enable the new tax arrangements, including Revenue Scotland, to be put in place for an April 2015 commencement date. The consultation on Tax Management is a key stage in this process prior to the Bill being prepared. The Scottish Government has introduced a Bill to establish LBTT and proposes to introduce a Bill to establish a Scottish Landfill Tax.

Objectives

This proposal will, subject to the results of the consultation and the approval of the Scottish Parliament, result in legislation establishing a tax authority to administer the devolved taxes in Scotland, to be called Revenue Scotland, and putting in place a tax management framework within which these taxes will be administered.

Rationale for Government intervention

The Scottish Government takes the view that when SDLT and Landfill Tax are discontinued in Scotland, they should be replaced by corresponding devolved taxes. Otherwise, the Scottish budget would be reduced and public services in Scotland would suffer. Establishing and administering devolved taxes in Scotland requires primary legislation by the Scottish Parliament, which in turn requires the Scottish Government to consult on its proposals and then to draft legislation.

Link with Wider Policy Initiatives

The effective and efficient management of the devolved taxes will enable the Scottish Government to raise through taxation broadly the same level of income as is currently raised in Scotland through SDLT and UK Landfill Tax, and which will be withdrawn from April 2015 through the block grant adjustment mechanism.

Consultation

Within Government

We have consulted widely within the Scottish Government and with other tax authorities prior to publishing the proposals in the consultation paper.

Public Consultation

Public consultation is taking place between December 2012 and April 2013.

Business

We have engaged with bodies representing tax advisers and other professional groupings in drawing up the proposals in the consultation paper. We welcome all views in response to the paper. In addition, we have consulted widely, and particularly with bodies representing tax advisers and other professional groupings, on our LBTT proposals and are in process of consulting widely on our Scottish Landfill Tax proposals.

Options

This part of the BRIA is divided into three sections - the Tax Authority; the powers and obligations of both the Tax Authority and taxpayers; and arrangements for appeals and complaints by taxpayers.

Estimated costings relate to the cost of establishing and running the two devolved taxes included in the 2012 Act. The Financial Memorandum on the Land and Buildings Transaction Tax Bill, introduced to the Scottish Parliament on 29 November 2012, provides estimated costs of establishing Revenue Scotland and of the changes necessary within RoS to operate LBTT. The Financial Memorandum can be found here: http://www.scottish.parliament.uk/parliamentarybusiness/Bills/56718.aspx.

Tax Authority

There were two options for managing the devolved taxes. The Scottish Government has announced that it intends to adopt Option 2 below.

Option 1: Use statutory powers to place responsibility on HM Revenue and Customs (HMRC) to administer the taxes as an agent of the Scottish Government

Sectors and groups affected

HMRC indicated that it was willing to act under agency powers to administer the devolved taxes on a like for like basis with SDLT and the UK Landfill Tax. Under such an arrangement, the Scottish Government and the Scottish Parliament would have been constrained in the design of the devolved taxes, for example to carry forward into LBTT the structure of SDLT. This would have prevented the slab structure of SDLT being replaced by a progressive structure for LBTT. This constraint would have affected different groups of taxpayers in different ways, depending on the details of the individual devolved taxes to be approved by the Scottish Parliament including tax rates, bands and thresholds.

Benefits

This option would have meant existing HMRC staff administering LBTT, using existing IT systems. This could be regarded as reducing risks for the tax authority. However there would be associated disbenefits, as described above. There is no indication that using existing staff and systems would bring particular benefits to businesses.

Costs

There is no information available to the Scottish Government to suggest that costs to businesses would be higher or lower under Option 1.

In terms of costs to the public sector, the Scottish Government in June 2012 provided estimated costs of this option to the Scottish Parliament, based partly on information provided by HMRC. These showed estimated set up costs in the period to March 2015 of £2,924,000 and estimated annual running costs of £3,870,000.

Option 2: Establish a new tax authority in Scotland to administer the devolved taxes, with power to delegate collection and related functions to other bodies

Sectors and groups affected

There is expected to be a limited effect on conveyancing solicitors and on landfill operators who will require to work with Revenue Scotland, RoS and SEPA rather than with HMRC for the devolved taxes. RoS already collect on behalf of HMRC a proportion of SDLT receipts in Scotland. Under the Scottish Government's proposal, Registers of Scotland and Scottish Environment Protection Agency are affected.

Benefits

Establishing a Scottish tax authority enables the Scottish Government and the Scottish Parliament to exercise significant choice in the design and administration of the devolved taxes, so that the taxes can be adapted to Scottish conditions and priorities.

Delegating some collection etc powers to RoS and SEPA means that staff who are experts in the fields of land registration and environmental regulation will carry out day to day administration. This should provide opportunities for efficiencies.

Businesses and taxpayers generally in Scotland should benefit from taxes that are designed with Scottish conditions and priorities in mind. They may also benefit from dealing with staff who are expert in the fields of land registration and environmental regulation.

Costs

There is no information available to the Scottish Government to suggest that costs to businesses would be higher or lower under Option 2.

In terms of costs to the public sector, the Scottish Government in June 2012 provided estimated costs of this option to the Scottish Parliament. These showed estimated set up costs in the period to March 2015 of £2,530,000 and estimated annual running costs of £2,836,000.

Tax Framework

Existing UK powers used by HMRC to collect non devolved taxes will not be available to support the devolved taxes in Scotland. The Scottish Government therefore needs to establish Scottish arrangements and powers. This gives an opportunity to simplify the existing complex set of tax arrangements.

There appear to be three principal options for a tax system framework. These are set out below. The Scottish Government has indicated that it intends to pursue the third option.

Option 1: Adopt the UK tax framework for the devolved taxes

Benefits

The UK tax framework incorporates the administrative processes, powers, obligations, arrangements for appeals, and sanctions with which UK taxpayers, including Scottish-based taxpayers, are familiar. The framework has been the subject of work recently to modernise it and make it more coherent.

However, the UK framework still includes many administrative processes etc that are specific to individual taxes.

Insofar as the existing UK tax framework is reflected in HMRC's IT systems, and if these IT systems were made available to Revenue Scotland, there might be a reduced requirement for IT development. However, there is no information available that suggests any particular level of savings would be achievable. In practice this benefit would be likely to flow only if Tax Authority option 1 had been selected.

There is no information to suggest that costs to taxpayers, including business taxpayers, would be any less or more under this option than under the others.

Costs

Legislation underpinning the UK tax framework would not be under the control of the Scottish Parliament, so changes could not be made to suit Scotland's conditions and priorities, including Scotland's distinctive legal system. In some circumstances this might add to costs incurred by taxpayers, including business taxpayers. There is no information available to suggest what the scale of any costs might be.

The UK tax framework would not have applied automatically to the devolved taxes; legislation would also have been required to enact this option.

Option 2: Have a basic framework and then specific rules for each tax

Benefits

A Scottish framework could be developed that aligned administration etc with the characteristics of each devolved tax. Such a mixed approach might provide the flexibility to tailor rules where necessary and beneficial.

With two devolved taxes this would appear to be a workable solution. There is no information to suggest that costs to taxpayers, including business taxpayers, would be any less or more under this option than under the others.

Costs

Such a solution would be likely to require extra legislation. In time, as more devolved taxes were added, the system would become fragmented and complex. This could add to the costs of taxpayers, including business taxpayers.

Option 3: Have a single framework for all Scottish taxes

Benefits

A single set of administration arrangements would apply for all taxes. The legal framework for these would be coherent and consistent. This would make it clearer for both Revenue Scotland and taxpayers, and offers the opportunity for efficiencies and reduced costs for taxpayers. However there is no information to suggest that specific savings would flow to taxpayers, including business taxpayers.

Because the legislative framework would be in a single Act, the tax code would be more compact without reducing its effectiveness. The Scottish Parliament would have the opportunity to consider the framework as a whole. This should enable the Parliament to scrutinise the framework better.

It should also be easier for the Scottish Parliament and others with an interest to hold Revenue Scotland to account for how it manages and works within the framework.

Costs

There is no information to suggest that costs to taxpayers, including business taxpayers, would be any less or more under this option than under the others.

Nor is there any information about the scale of any potential costs or savings to the public sector from adopting this option. However there appear under this option to be opportunities to reduce costs over time through more coherent and accessible legislation.

Challenging / Appealing Revenue Scotland's decisions

It is important that Scottish taxpayers who disagree with decisions taken by Revenue Scotland should be able to challenge these with a view to seeking early resolution. The Scottish Government has set out in the consultation paper its intention to institute a system which requires an early review of the initial decision by an individual within Revenue Scotland who had not been involved in the first consideration, and proposes that taxpayers should be encouraged to consider mediation as a second step. However, where early resolution cannot be achieved, taxpayers would have recourse to an independent appeals procedure to review decisions about devolved taxes taken by Revenue Scotland.

The consultation paper sets out proposals for a new jurisdiction for the devolved taxes, to be established in advance of 1 April 2015, providing for appeals against decisions on the devolved taxes. The proposals also make clear that if Scotland were to take on responsibility for a wider set of taxes, the Scottish Government intends to establish a broader tax jurisdiction for inclusion in the proposed Scottish Tribunal System.

If it is not possible to include the new devolved taxes jurisdiction in the Scottish Tribunals System as soon as the devolved taxes come in effect in April 2015, the Scottish Government has indicated that it will consider other transitional options.

Transitional arrangements for appeals

There appear to be three options relating to transitional arrangements for appeals, on the basis that the intention is to move, if possible, directly to a devolved taxes jurisdiction in the Scottish Tribunals System.

Option 1: The UK Chambers (in the First Tier and Upper Tribunal) of the UK Tribunal to take appeals against devolved taxes for the transitional period.

This option has the merit of drawing on the existing expertise of Scottish panel members familiar with tax disputes. It would also minimise the number of transfers and changes between systems. It would require the agreement of the senior judiciary of the UK Tribunals and of its administration, the HM Courts and Tribunals Service (HMCTS) and would require a formal agreement including on the management and prioritisation of the caseload and costs associated with this service.

Option 2: Existing devolved tribunals to have their functions extended to include hearing appeals against devolved tax decisions for the transitional period

Existing devolved tribunals such as the Lands Tribunal for Scotland have generally relevant expertise and are based in Scotland. Asking an existing tribunal to hear appeals on devolved taxes could increase their workload. It would take time for expertise in devolved tax matters to be built up. It might be necessary to recruit additional members with specialist experience.

Option 3: the Scottish court system to hear appeals relating to the devolved taxes

The Scottish courts have relevant knowledge and expertise. However there may be risks of increasing workload of busy courts and of dividing up tax appeals in Scotland between UK taxes where appeals are taken by tribunals and devolved taxes where appeals would be taken in the Scottish courts. In due course, a new jurisdiction for the devolved taxes would still need to be established.

The Scottish Government intends to use the consultation on Tax Management to gather views from the sectors and groups affected by appeals arrangements, including on the benefits associated with the options and on whether there are disproportionate costs to any stakeholders. At present, the Scottish Government does not have information which suggests that any one of these options would be likely to have costs or benefits that differ significantly from the other options.

Scottish Firms Impact Test

During the consultation, the Scottish Government will actively seek information from relevant business interests - particularly from tax advisers, other professional groupings, and representative bodies - on costs and benefits associated with the issues and options discussed in this Impact Assessment.

Competition Assessment

As for the Scottish Firms Impact Test.

Test run of business forms

The design of forms needed for the effective management of the devolved taxes will be the responsibility of Revenue Scotland, with input from RoS and SEPA. The Scottish Government has made clear that it wants the design of forms and of administrative systems generally to be discussed with taxpayers and taxpayers' representatives most likely to complete such forms.

Legal Aid Impact Test

The Scottish Government does not believe there are any Legal Aid implications associated with these proposals. However we would be interested in any views on this issue and on publically-funded legal assistance more generally from consultees.

Enforcement, sanctions and monitoring

The consultation paper, on which the comments of taxpayers and taxpayers' representatives are being sought, sets out proposals for powers, sanctions and enforcement relating to the devolved taxes.

Declaration and publication

I have read the Business and Regulatory Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options. I am satisfied that as far as possible at this stage, business impact has been assessed with the support of businesses in Scotland and that there are arrangements in place to gather the views of business on the proposals set out in the consultation paper including on costs and benefits.

Signed:

Date: 10 December 2012

John Swinney, Cabinet Secretary for Finance, Employment and Sustainability

Scottish Government Contact point:

Ian Moules, Fiscal Responsibility Division, ian.moules@scotland.gsi.gov.uk or tm@scotland.gsi.gov.uk

Q37: Do you have any comments on the Draft Partial Business Regulatory Impact Assessment?

Any Other Comments?

Q38: Do you have any other comment you wish to make on the arrangements for tax management?

Appendix 4: Glossary of Terms

Agent

A professional person, e.g. a lawyer, an accountant, or a tax adviser, who is designated by the taxpayer to act on his/her behalf with the Tax Authority.

Assessment

A document sent by the Tax Authority (Revenue Scotland) to the taxpayer correcting his / her self-assessment or setting out the Tax Authority's estimate of the tax due where the taxpayer has not submitted a self-assessment.

Devolved taxes

Those taxes for which the Scottish Parliament is empowered to legislate as a consequence of the Scotland Act 2012.

Local taxes

Taxes such as Council Tax and Non-Domestic Rates for which the Scottish Parliament has competence that are used to finance local government directly. These are not taxes covered by the Scotland Act 2012 and do not fall within the definition of "Devolved taxes" used in this consultation.

Penalty

A civil-law sanction issued by the Tax Authority to a taxpayer for his / her failure to comply with one or more parts of the tax legislation.

Self-assessment

A taxpayer's declaration to the Tax Authority of the amount of tax he / she thinks is due on a particular transaction or for a specific tax period (e.g. the quarter ending December 2012).

Tax return

Information a taxpayer is required to provide, in the format required by the Tax Authority and including his/her self-assessment/declaration.

Tax adviser

A professional person who provides advice to a taxpayer on the tax implications of certain activities.

Taxpayer

The person who is required legally to submit a tax return in relation to a taxable action or a number of taxable actions and pay the tax due.

Appendix 5: Summary of Consultation Questions

Chapter 2: Revenue Scotland

Q1 What are your views on the proposed function and duties of Revenue Scotland?

Q2 What are your views on the proposal to establish Revenue Scotland as a Non-Ministerial Department, part of the Scottish Administration and accountable to the Scottish Parliament?

Q3 What are your views on the governance options for Revenue Scotland, and on how people should be selected for appointment to the posts of Chief Executive and the Board?

Q4 When, how and on what subjects should Revenue Scotland engage with taxpayers, their agents and tax professionals?

Q5 How and in what form should Revenue Scotland provide information to, and communicate with, taxpayers and their agents?

Chapter 3: Powers and Obligations

Q6 What are your views on the proposed framework for tax collection powers? We would be especially interested to know whether you see merit in the creation of a "Taxpayers' Charter".

Q7 What are your views on the proposed obligations on taxpayers? Are there any other obligations on taxpayers which should be included?

Q8 What are your views on the specific powers proposed for requesting information, for inspecting and sampling and for investigating? Are there any safeguards that might need to apply to them or any other powers you think Revenue Scotland may need?

Q9 What are your views on the proposals set out for the amendment of tax returns by Revenue Scotland or taxpayers? Please comment on the terminology, the time limits proposed and anything else you consider relevant to the amendment of tax returns.

Q10 Are there any powers that Revenue Scotland should not delegate and, if so, what are they and why?

Chapter 4: Ensuring Compliance

Q11 What else might be done to make it as easy as possible for taxpayers to comply with their obligations, and to ensure that those who wish to comply are supported to do so?

Q12 What particular features should Revenue Scotland's systems include to help agents to operate most effectively on taxpayers' behalf?

Q13 What are your views on the list of non-compliant behaviours at 4.10 - for example, are there other situations in which civil penalties should be available?

Q14 What are your views on the proposal that Revenue Scotland should have discretion, subject to maximum penalties set in legislation and also subject to published guidance, to determine the level of sanctions? What factors might be taken into account by Revenue Scotland in deciding what level of sanction to apply?

Q15 What are your views on the types of sanction and their possible uses described in the text box at the end of chapter 4?

Q16 What are your views on the proposed arrangements for collecting unpaid tax set out at 4.23 - 4.26?

Chapter 5: Tackling Tax Avoidance

Q17 What are your views on the measures proposed for tackling tax avoidance? What other methods might be employed?

Q18 If obligatory notification arrangements were included in the proposed Tax Management Bill, what do you think should be the main features? Are there any features of other similar schemes that you think should be avoided?

Q19 Of the two broad approaches - a GAAR targeted at highly-artificial and contrived abuse of tax legislation, or a more widely-drawn provision - which do you believe is likely to be more effective, and why?

Q20 What advantages might a prior clearance rule offer? How might it be designed to provide maximum certainty at least cost?

Q21 How can the intentions of those drafting and passing the relevant legislation best be set out in a way that is useful to taxpayers, Revenue Scotland, and those adjudicating on disputes and appeals?

Q22 What tests do you think should be used to decide whether an arrangement is wholly or mainly intended to achieve a reduction in tax due?

Q23 Do you see a role for external expertise in assessing tax arrangements to see whether they are "caught" by a GAAR, and if so what might that role be? What arrangements do you think should be put into place for appeals?

Chapter 6: Resolving Tax Disputes

Q24 What are your views on the proposals set out from 6.6 - 6.8 for avoiding disputes? What else could Revenue Scotland do to avoid disputes arising in the first place?

Q25 What are your views on the proposed arrangements for reviews and / or the appropriate duration for the period within which the review must be concluded?

Q26 What are your views on the proposal to encourage the voluntary use of mediation? Should we be considering any other approaches to dispute resolution?

Q27 What do you think would be the best option for dealing with appeals to a tribunal until a tax jurisdiction is established in the Scottish Tribunal System?

Q28 How should the costs of mediation or tribunal appeals be met or shared?

Q29 What are your views on how Revenue Scotland could best demonstrate that it is learning from the resolution of disputes?

Q30 What are your views on the proposed approach to the handling of complaints set out from 6.24 - 6.27?

Chapter 7: Treatment of Taxpayer Information

Q31 What are your views on the proposed statutory provision forbidding disclosure of information held by Revenue Scotland? Should there be criminal sanctions if information is disclosed?

Q32 Do you agree that Revenue Scotland should be empowered to share information with other public bodies and other tax authorities internationally for the purposes outlined at 7.8 and 7.9? Do you think there are other purposes for which information should be shared? Should such sharing be governed by some kind of formal agreement, and if so what form should that agreement take?

Q33 Do you agree that the existing framework for public interest disclosure, described at 7.16, is sufficient for Revenue Scotland?

Q34 Do you agree that certain information held by Revenue Scotland and bodies to which it has delegated powers should be exempt from Freedom of Information legislation in order to prevent disclosure of information that would identify or could be used to identify a taxpayer?

Chapter 8: Accelerated Tax Changes

Q35 What are your views on the proposals for an accelerated tax changes regime set out at 8.10?

Draft Equalities Impact Assessment

Q36 Do you have any comments on the draft Equalities Impact Assessment published alongside this consultation?

Draft Business and Regulatory Impact Assessment

Q37 Do you have any comments on the draft Business and Regulatory Impact Assessment published alongside this consultation?

Overall

Q38 Do you have any other comments you wish to make on the arrangements for tax management?

Footnotes

1. The legal meaning of "Scottish Administration" is given at section 126 (6) of the Scotland Act 1998.

2. On 1 April 2013, the Police Complaints Commissioner for Scotland will become the Police Investigations and Review Commissioner (PIRC). The PIRC will retain all the current complaints handling review functions of the PCCS.

3. The Police Complaints Commissioner for Scotland will be replaced from 1 April 2013 by the Police Investigations and Review Commissioner