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Anti-avoidance: GAAR on the way

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21st Mar 2012
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The Chancellor’s “moral repugnance” towards both tax evasion and “aggressive” tax avoidance fuelled an anti-avoidance crackdown that will see the introduction of a general anti-avoidance rule (GAAR) in the Finance Bill 2013.

The government will consult during the coming months on the new rule, outlined in the proposals from Graham Aaronson published last November. But to tide it over until the time it can roll out its new weapon, HMRC rolled out a raft of targeted anti-avoidance measures effective from Budget day, 21 March 2012.

The Chancellor confirmed the government had increased both the resources and the number of staff working on evasion and avoidance at HMRC. “Taken together, the anti-avoidance measures in this year’s Finance Bill will increase tax revenue over the next five years by around £1bn – and protect a further £10bn that could have been lost,” Osborne said.

Some tax commentators expressed reservations about whether the GAAR will achieving the desired end of preventing abusive transactions.

Simon McKie, chairman at McKie & Co, argued in a recent Tax Adviser article that the way the rules are drafted in Aaronson’s proposals could catch even basic tax-motivated behaviour: “The fundamental problem with the draft legislation is that its application depends primarily upon a judgment as to whether any particular arrangements ‘can reasonably be regarded as a reasonable exercise of choices of conduct afforded by the provisions of the Acts’.

“We are given no standard by which to judge reasonableness. Normally, reasonableness criteria in the law are judged by reference to the ordinary, reasonable man. Such a test would present great difficulties in respect of complex tax planning because the ordinary reasonable man is unlikely to be sufficiently familiar with tax law to be capable of understanding the planning’s technical effects,” he said.

Aaronson's  safeguards will not prevent HMRC as a whole from using the GAAR as a weapon to coerce settlements by the taxpayer, he added.

“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," McKie told AccountingWEB.

"The point about this provision is that it’s a blunderbus that potentially catches far more targets than intended target, which will introduce enormous uncertainty into the tax system and will have a colossal economic cost to solve a problem that was pretty much solved back in 2004. It seems to me that this is purely political response to a problem that virtually ceases to exist.”

Jeremy Cape, a partner at SNR Denton, added: "The Chancellor did not see a distinction between tax evasion and aggressive tax avoidance, calling both "repugnant". He is pushing ahead with the general anti-avoidance rule and has made it clear that retrospective legislation may become more common."

The package of abusive arrangements targeted by HMRC from 21 March include:

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By User deleted
22nd Mar 2012 08:29

GAAR - catch all for sloppy legislation ...

To what extent are the Governments GAAR proposals a cover up for sloppy legislation in the first place? - just look at all the subsequent amendments to anything currently on the statute book

Inevitably the inability of Government to clearly & concisely articulate the rules leaves the whole process open to doubt and possible challenge - shambolic

In fact for the future why not deliberately keep all legislation sufficiently vague as to ensure that there is absolutely no clarity and potentially everyone gets caught because of interpretation.

Something along the lines of 'do not arrange any of your tax affairs because we disapprove of this approach' would be the only piece of legislation needed.

The savings would be immense because this 'one-liner' would replace all existing legislation and armies of civil servants could all be dispensed with.

Ideal situation, massive public sector savings and Government interpreted legislation - win, win ...

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By Trevor Scott
22nd Mar 2012 09:47

Hypocrisy

George first states:

“Two hundred years ago, Adam Smith set out the four principles of good taxation – and they remain good principles today. Taxes should be simple, predictable, support work, and they should be fair.”

Yet subsequent talks of GAAR.

Retrospective assessment of taxes is not simple, does not support work, and certainly isn’t fair. The only predictable thing is that it will be a dog’s breakfast.

All we want is clear, simple laws that are fair; also the rule of law, not civil serpants. The effect will be growth.

 

 

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By johnjenkins
22nd Mar 2012 12:05

Unfortunately politicians

are still trying to con the public into believing that tax avoidance is wrong - when will they ever learn.Sorry tax avoidance that they don't like is wrong. A message for GO, tax payers don't like aggressive stealth tax, compliance and penalty regimes. Tax payers also don't like having to foot the bill for bailing out financial institutions that cause mayhem and then have the audacity not to lend to small business in order to get the country out of the smelly stuff.

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