General anti-abuse rule (GAAR) – consultation
HMRC published a consultation document on 12 June 2012 covering proposals for a new GAAR, to be introduced in Finance Bill 2013.
The proposals follow the report from Graham Aaronson QC which concluded 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.
It is proposed that the GAAR would apply where there are “tax arrangements” and it will include an “abusiveness test”. Any tax advantage would be counteracted on a just and reasonable basis.
The proposed GAAR would be only one strand in HMRC’s approach to tackling avoidance. Even if arrangements do not fall within the GAAR, they may still be challenged by HMRC using either existing anti avoidance legislation, or by introducing further targeted legislation. The aim, however, is to reduce the need for specific legislation once the GAAR becomes effective.
The proposed GAAR will apply to income tax, corporation tax, capital gains tax, petroleum revenue tax, inheritance tax and SDLT. It will also apply to NIC, but this will require separate legislation. Provisions will also be introduced to counter tax advantages obtained by the application of double tax treaties, but these would have to be consistent with the UK’s duty to abide by the terms of its agreements and be consistent with OECD guidelines on the application of treaties.
The intention is that, so far as possible, the GAAR would operate within the existing self-assessment regime. Taxes not dealt with under self-assessment will have their own administrative rules.
The Aaronson report proposed an Advisory Panel to provide a safeguard for taxpayers. The Advisory Panel would have two key functions, the first to provide opinions to HMRC and the taxpayer on the application of the GAAR, the second to update and expand the guidance, which is seen as an important element of the GAAR. It would draw its expertise from a range of individuals, to consider the business, commercial and economic aspects of the arrangements. At least one of the non-HMRC members should have experience relevant to the arrangements of the business sector relevant to the arrangements.
Where there is a dispute relating to the application of the GAAR, there should be available all relevant material which was in the public domain, including evidence of practice (both HMRC and non-HMRC) at the time of the arrangement. This should be admissible in tribunal or court proceedings even if it would not otherwise be admissible under the normal rules of evidence.
What does this mean for practitioners
The stated aim of the GAAR is not to attack “the centre ground of tax planning” but to target artificial and abusive arrangements. This means that most of the routine tax planning work that practitioners offer to clients is not likely to be affected by a GAAR. The GAAR is likely to focus on structured planning and schemes, many of which are likely to fall within the existing DOTAS provisions.
However, there may be some concern that as the application of the GAAR develops there could be a creeping intrusion into what might be regarded by practitioners as normal tax planning. It is hoped that the relevant professional bodies will be vigilant in this area, so that the GAAR remains targeted on what the majority of practitioners would regard as abusive, and is not used as a tool to close down any tax mitigation.