Week in Insights: UK Snail Farms Prove Tax Avoidance Can Be Wacky

Some taxpayers go to great lengths for preferential tax treatment, and the allure of tax savings can overshadow the zaniness of a scheme. If I told you you’re a dozen or so boxes away from converting your office into a farm for tax purposes, you’d probably be dubious. But if I told you how much you could save in taxes, you might be more inclined to hear me out.

Take the curious case of a snail farm in a Liverpool office building that has sparked a tax avoidance probe. The “farm,” consisting of about 15 crates that contained as few as two snails each, was an attempt to create an agricultural use that would exempt the building from the city’s business rates.

Commercial properties in the UK such as shops, offices, warehouses, and factories must pay business rates, but agricultural uses are exempt. Business rates are an important source of revenue for local governments, so the exemptions aim to protect only genuine farming operations.

Local authorities have known about snail-farming schemes since at least 2019, when research found that they and similar misuse of agricultural exemptions accounted for 17% of business rates lost to avoidance. But the knowledge doesn’t stop property owners from trying their hand at tax motivated snail husbandry. Caselaw from elsewhere in the UK suggests these operations are scrutinized for signs of an actual farming operation other than “some snails in some crates.”

The line between clever tax planning and outright abuse is often razor thin. The Liverpool snail operation appears to have fallen on the wrong side of that line, according to local council. But it’s far from the first time creative and questionable strategies have been used to sidestep tax liabilities—and it won’t be the last.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts assessed the IRS’s corporate group mailbox program, New York City’s update on partnership sourcing, and more.

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Insights

Vanderbilt Law’s Beverly Moran analyzes recent GAO findings on IRS diversity challenges, saying that collecting and analyzing data are good first steps toward equity.

Vinson & Elkins’ Stephen Josey and Margaret Hill say the IRS’s new pilot communications program benefits taxpayers but also introduces potential pitfalls.

Whistleblower attorney Stephen Kohn touts changes that improved the IRS Whistleblower Program, saying Congress must act on bill to further strengthen its functionality.

KPMG’s Aaron Shafer reviews New York City’s plans on partnership sourcing, saying taxpayers using market-based approach will find the change helpful.

Ogletree’s Carly Grey and Katrina Clingerman examine a GAO report on IRS retirement advice, noting that participant education programs can help clarify complex issues.

GTECS’ Rafael Benevides says Brazil’s proposed advance pricing agreement regulation could potentially reduce disputes and promote foreign investment in the country.

USC law student Isabella Robakowski offers tips to summer law firm associates and says you should use the opportunity both to showcase your willingness to learn and to imagine what it would be like to be part of the team.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

California’s film industry and economy need a boost from modern production infrastructure, green initiatives, and workforce development—not more film tax credits, Andrew Leahey says in his latest Technically Speaking column.

“Expanding tax credits is a short-sighted solution for a state with serious financial needs,” Andrew writes, adding that California must invest in long-term fixed benefits to avoid bidding wars with other states. Read More

News Roundup

IRS Issues Final Rules on Intangible Property Repatriations

The IRS finalized regulations Wednesday that aim to prevent excessive taxation in certain cases when intangible property such as patents or trademarks is brought back to the US. Read More

India Aims to Simplify 60-Year-Old Income Tax Law With Review

India’s income tax department will review its more than 60-year-old income tax law with an aim to simplify it for taxpayers. Read More

IRS Rules Cement Conservation Easement Deals as Tax Shelters

The IRS finalized rules labeling certain syndicated conservation easements as listed transactions and boosting reporting requirements for advisers and certain participants. Read More

Chick-fil-A Growth in Puerto Rico Aided by Extended Tax Benefit

Puerto Rico is increasing local tax incentives for opportunity zone projects, including a major expansion by Chick-fil-A Inc., which tax policy analysts say is an unusual beneficiary for a program meant to spur economic development. Read More

Tax Management Memorandum

Real estate assessors in some jurisdictions view the contemporaneous price paid for replacement realty in a like-kind exchange as determinative or highly influential in the valuation of that replacement realty or its comparables—but Kansas has adopted controversial legislation to ignore such prices, notes Alan S. Lederman of Gunster.

Shareholder stock redemption obligations pursuant to a buy-sell agreement no longer can be ignored in a business entity’s valuation for estate tax purposes, and may result in significant additional tax liability, as the taxpayer in a recent Supreme Court case found, financial planners Robert Barnett and Henry Montag explain.

While tax gross-up clauses are usually considered innocuous provisions intended to make a recipient in a transaction whole, they are a salient component of deal economics, as an improperly negotiated gross-up could expose the paying party to disproportionate risk, Pryor Cashman’s Islame Hosny advises.

Career Moves

Jon Bender was appointed by Holland & Hart as administrative partner of its Denver office.

Hrishikesh Shah joined Gould & Ratner as a partner in its corporate and tax practices.

Jesse Morton joined BRG’s forensic accounting and investigations practice as a managing director in Atlanta.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.