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Government rolls out GAAR consultation

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12th Jun 2012
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Following the Budget 2012 announcement the government has launched a formal consultation on a new general anti-abuse rule (GAAR) to help tackle artificial and abusive tax avoidance schemes.

The introduction of the GAAR consultation follows an independent review led by Graham Aaronson, who concluded that a targeted rule would provide more certainty and fairness in payments while retaining a tax regime which provides a more level playing field for business.

Francesca Lagerberg, head of tax at Grant Thornton, warned that the key will be what is found to be “abusive” and whether it will be possible to easily differentiate the commercially complex from the purely tax motivated scheme.

“The indications of what will or won't be caught are likely to be picked over in the courts for many years to come," she said.

Lisa Macpherson, national director of tax at PKF added: “We do not condone abusive tax avoidance but, at first sight, these proposals do not look balanced. It is almost as though HMRC has simply cherry picked from the Aaronson proposals and left out anything it did not like. It is a shame that the proposals read as heavy handed because we support a workable GAAR and there are some good ideas that may now get overlooked.” 

In March a number of tax commentators expressed reservations about whether the GAAR would achieve the desired end of preventing abusive transactions. Simon McKie of McKie & Co told AccountingWEB: “Aaronson's safeguards will not prevent HMRC as a whole from using the GAAR as a weapon to coerce settlements by the taxpayer.

“Just labelling something as a closely targeted rule doesn’t make it that. There is no doubt that the introduction of this rule will cause major uncertainty in the tax system, and it will therefore inhibit economic transactions," he said.

So far the government has held informal discussions with business, tax practitioners and representative bodies in order to hear their views prior to drawing up the consultation and draft legislation, both published today.

In line with Aaronson’s recommendations, the proposed GAAR will apply to the main direct taxes – income tax, corporation tax, capital gains tax and petroleum revenue tax – and national insurance, as well as stamp duty land tax (SDLT), some taxes linked to corporation tax and inheritance tax.

The government will establish an advisory panel, members of which will come from both HMRC and business, to give opinions on cases where HMRC proposes to apply the GAAR and to develop, update and approve guidance on its use.

David Gauke, Exchequer Secretary to the Treasury, said: “The introduction of a GAAR will strengthen our anti-avoidance strategy, complementing the tools HMRC already has at its disposal and acting as a deterrent to those engaging in artificial and abusive avoidance schemes. The rule we are consulting on from today will effectively tackle such schemes, while minimising the impact on the vast majority of taxpayers who pay a fair share.”

The closing date for comments is 14 September and as revealed in Budget 2012, the new general anti-abuse rule for tax is expected to be introduced in the Finance Bill 2013.

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