The Government’s seemingly endless war on tax avoidance continues unabated, seemingly shored up by success in the courts and the tribunals. Currently we have consultation on:
- the £50,000/25 per cent of “accrued total income” cap on income tax relievable amounts
- the intensification of the Disclosure of Tax Avoidance Schemes (DOTAS) provisions
- the General Anti-Abuse Rule
It is on the latter that my next few articles will concentrate and the approach taken will be founded on extracts from the consultation document (Condoc) issued on 12 June. A reading of the Condoc provides invaluable insight into, and clarification of, Government thinking about the need for, deployment, utility and aspired to effect of the GAAR.
Its need is clearly born out of “official” frustration – frustration at the inability of specific legislation to adequately anticipate all of the ways of achieving a taxpayer-beneficial outcome that is other than what Parliament intended.
Before looking at the promised GAAR extracts, though, it’s important to appreciate what the proposed GAAR is not. There may be some misconception on that score.
In some other jurisdictions we see a GAAR that is very wide accompanied by a robust (and potentially very costly) system of clearance. This type of widely drawn rule would essentially work on the premise that everything that saves tax could potentially be “caught”. This type of rule inevitably leads to a search for certainty through applications for clearance. The resulting uncertainty (while waiting for clearance) and cost (of applying for and delivering clearance) means that this type of general rule will not be pursued in the UK. And it’s hard to argue with this conclusion.
From here on, extracts from the Condoc will be in bold italics.
In December 2010, Graham Aaronson QC was asked by the Government to report on whether a general anti-avoidance rule would be beneficial for the UK tax system. Graham Aaronson’s report was published on 21 November 2011. He concluded (as indicated above) that introducing a broad spectrum general anti-avoidance rule would not be beneficial to the UK tax system, and instead recommended the introduction of a rule which is targeted at “abusive” arrangements. The Government announced in its 2012 Budget that it accepted this recommendation and would consult with a view to bringing forward legislation in Finance Bill 2013 that was both effective in tackling artificial and abusive avoidance schemes and also practical both for taxpayers and HMRC.
The Government agrees with the Report’s conclusion that a “broad spectrum” general anti-avoidance rule would not be beneficial for the UK. The Government has been clear that any GAAR must ensure that sufficient certainty about the tax treatment of transactions could be provided without undue costs for businesses, individuals and HMRC. A broad rule risks compromising the certainty that is vital to provide the confidence to do business in the UK.
The Government therefore agrees with the Report that a rule targeted at abusive tax avoidance arrangements would be the right approach for the UK tax system.
So the target and scope of the GAAR appears to have been made tolerably clear. Perhaps the most important factor in the name of the new rule (GAAR) is that it is the word “abuse” rather than “avoidance” that follows “anti”.
Tony Wickenden is joint managing director of Technical Connection
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