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HMRC reveals new GAAR guidance

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16th Apr 2013
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HMRC has finally published guidance on the General Anti-Abuse Rule (GAAR) which forms part of the government's ongoing attempt to tackle abusive avoidance.

The new guidance covers the scope and procedures for the rule, which comes into effect when the Finance Bill 2013 becomes law in July. Details of the GAAR have been hammered out in recent months by an independent advisory panel that included campaigners, lawyers, accountants and business representatives.

According to the guidance, the GAAR will apply to tax arrangements which are “abusive” and defined as “any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes”

It applies to the following taxes:

  • income tax
  • corporation tax (including amounts chargeable or treated as corporation tax)
  • capital gains tax
  • inheritance tax
  • petroleum revenue tax
  • stamp duty land tax
  • annual tax on enveloped dwellings

The new rules apply to instances where HMRC judges taxpayers are “entering into contrived arrangements to obtain a relief but incurring no equivalent economic risk”. In such cases, HMRC will apply a “double reasonableness” test which requires HMRC to show that the arrangements “cannot reasonably be regarded as a reasonable course of action”.

The new guidance, which includes definitions of “tax advantage” and “tax arrangements”, also indicates that the GAAR is to be extended to cover NICs, subject to legislation being passed.

However, HMRC has added that just because something isn't covered by the GAAR doesn't mean it won't be tackled in another way, including using existing anti-avoidance methods.

Business reliefs such as business property relief, EIS, capital allowances and patent box will not be caught by the GAAR, if they are used constructively to encourage and support business growth.

The GAAR will not catch controversial examples of tax planning such as “flipping” second homes to avoid CGT, under the guidance which set out to ensure that “any reasonable choice” of action was not targeted, as well as transfer pricing arrangements undertaken by multinationals such as Google, Amazon or Starbucks.

HMRC has also warned there may be some arrangements which appear to be so abusive that it would be appropriate to invoke the GAAR without first completing the exercise of determining whether the arrangements would achieve their intended tax result under the rest of the tax rules. Unlike the general position in tax cases, it is HMRC that is required to demonstrate that the GAAR applies, and not for the taxpayer to show that it does not apply.

HMRC needs to show that there are tax arrangements, that these tax arrangements are abusive, and that the counteraction proposed by HMRC is just and reasonable.

Applying the GAAR will require HMRC to put any proposal before the advisory panel who will give their opinion as to whether the arrangements in question constitute a reasonable course of action.

The guidance was broadly welcomed by advisers who said it would provide clarity and reassurance to taxpayers. Alex Henderson, tax partner at PwC, said: “Today’s guidance highlights the GAAR aims to end extreme avoidance, not the centre ground of tax planning.”

Richard Murphy also said the GAAR was a step in the right direction, but added: “we have a long way to go to beat tax avoidance”. In spite of his hopes for the government’s anti-avoidance strategy, he said the GAAR was not general in nature as it only tackles the most egregious of schemes; does not tackle tax avoidance as that term is now widely understood; and that its construction makes it unlikely to succeed in its objectives.

Last month HMRC named Patrick Mears, a senior tax partner at Allen & Overy, as the new chairman of the GAAR advisory panel. Mears took over from outgoing interim chair, Graham Aaronson QC, on 15 April, and will lead the work to recruit permanent members of the panel.

The new guidance from HMRC:

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By Trevor Scott
17th Apr 2013 19:11

This isn't April 1st...

....the GAAR will apply to tax arrangements which are “abusive” and defined as “any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes” 

and while at first glance it is amusing, the reality of such a dogs breakfast isn't amusing.

Even for HMRC, objectively analysing often vague subjective facts (if they're available) is daft and a recipe for furether confusion and avoidance/evasion. I am keen to learn what an independently minded Judge will think of this legislation.

I don't understand how vague rules bring clarity. It has HMRC written all over it.

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By bt
20th May 2013 15:21

ISA

What's to stop HMRC using the rules to declare your ISA savings taxable? 

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