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Tax Simplifier 31: An example of tax complexity - tax definitions

    The 'Tax Simplifier' series aims to make the case for a much simpler tax code with practical recommendations for policy change. Blogs are published twice a week, on Monday and Thursday. Read David's previous blog on tax complexity. You can follow David on Twitter @TaxSimplifier.

    Tax legislators have always allowed themselves a great deal of freedom to introduce new laws.

    One example of this is the large number of needlessly different definitions. To appreciate this, we have to pay a short visit into the technical tax world.

    Let's look at the different tax definitions of a “group” of companies.

    A “group” has a different meaning for capital gains tax, for VAT, for capital allowances, for stamp duty land tax, and also for group relief purposes (surrendering losses from one company in a group to reduce taxable profits of another).

    But then there are more definitions, all different again, of a group of companies for the specific purposes of transferring intangible fixed assets, or for employee share acquisitions, or losses on disposals of shares, or real estate investment trusts, or group mismatch schemes, or demergers.

    Of course a single transaction could require more than one of these definitions and so result in group treatment for some aspects but not for others.

    And why does one find, dotted about tax law, so many different definitions of “connected” or “related” parties?  And why lots of different tests for unallowed purpose and allied expressions in tax avoidance sections?

    Some differences in definitions may be required, but not all of them.

    This should be cleaned up. But not, it is suggested, as a separate exercise. It should be achieved as one of the benefits of a general review of our tax law.

    David Martin enjoyed a career spanning 23 years as a tax lawyer within a large City Law Firm, latterly as Head of the Tax Department, before taking early retirement in 2002. During that time he advised both company and individual clients. He now lives a less pressurised life in Devon with his wife and two daughters and maintains an active interest in tax law.

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