Aaronson’s GAAR plan takes shape

Lots of comments coming in.

This from Baker Tilly, which "broadly welcomed" Aaronson's proposals:

David Heaton commented: “We are pleased that it is an anti-abuse rule instead of a general anti-avoidance rule, as that reduces uncertainty and limits the power of HMRC to label any schemes as ‘avoidance’.  It will target specifically abusive schemes and act as both a deterrent and a block on schemes that few people would see as reasonable planning. Furthermore, the need to show that an arrangement is abusive lies with HMRC, alleviating the burden on tax payers to prove their innocence, and an independent review panel will ensure transparency.”

The proposal for a review panel which puts the onus on HMRC to prove that a particular scheme should act as a useful discipline for both HMRC and advisers that should prevent trivial cases being taken in a way which creates uncertainty in the tax system. "Such a panel would also help achieve consistency in the application of the general anti-abuse rule throughout the UK," added George Bull.

"Some of the recent tax schemes which have had to be considered by the Courts have required the judges to strain the English language beyond what is intended in order to reach the ‘right’ decision. The GAAR is good for the constitution as it edges the UK away from the precipice of judge-made law. Legislation should be principles-led and Mr Aaronson’s proposals should make it easier for judges to arrive at the right decision in these cases, without having to butcher the English language.

"It is vitally important that the general anti-abuse rule is applied in a way which creates certainty of tax treatment, rather than uncertainty, because the rule could potentially be applied disruptively by HMRC to innocent transactions entered into by businesses or individuals."

Comments from CIOT president Anthony Thomas

In an offiical press release, CIOT President Anthony Thomas CIOT said: “If the government takes the GAAR report forward, it must do so as the balanced package that the Aaronson report sets out. The proposals contain important safeguards, including especially the review panel. This is not a pick and mix package.

“The acid test will be whether a GAAR can really focus on the egregious tax schemes that Graham Aaronson rightly has in mind, whilst not worrying those businesses and advisers that undertake routine transactions. The report rightly talks about an anti-abuse rule, not just anti-avoidance. A very significant risk, as Graham recognises, is that the UK adopts something that increases uncertainty and damages the reputation of the UK internationally as a location where the tax law is clear.”

Lobbying for a proper consultation process, he concluded: “Let us not lose sight of the fact that the key to good tax law is carefully evolved proposals, properly consulted on, which are translated into clear and practical law. If a GAAR is to be introduced, it needs to pass fairly simple tests, such as whether it simplifies the overall tax code, whether it will promote growth in the UK, whether it will improve the UK’s competitive position and increase the perception of fairness in our tax system, as well as targeting abuses.”

ICAS response

Comments from Elspeth Orcharton, assistant director of tax at ICAS:

“These are innovative proposals for a problem that has previously been put in the too difficult pile, not yet dealt with by HMRC and previous governments. It carefully considers the hybrid of the current complexities in the UK tax system, tax avoidance behaviours, economic competitiveness and a public call for a fairer spread of the tax burden.

"The key is maintaining business certainty for the vast majority and this drafting is intended to achieve that.  However, any developments would need to be coupled with a simplification of a number of complex anti-abuse provisions currently in legislation, with a  complete review carried out by HM Treasury and HMRC.  It remains to be seen how HMRC and HMT respond. To be effective it is vital that HMRC do not over apply the abuse provision, which would bring uncertainty on how businesses are taxed and reduce the competitiveness of the UK as a place to do business.

“Proposals are unlikely to make the next Finance Bill but could be included in the 2013 Bill.  We look forward to the continuing debate and possible future approach.”

McGrigors disagrees

Where the professional bodies gave a cautious welcome to the Aaronson report, lawyers and tax investigation specialists at PRC (Reynolds Porter Chamberlain LLP) were more critical. Tax partner Adam Craggs, Tax commented:

“It is difficult to see the value for taxpayers in yet more anti-avoidance legislation, particularly if it does not apply universally to all tax disputes.  Our concern is that these proposals, if implemented, will generate more disputes between taxpayers and HMRC about whether or not the GAAR applies to their circumstances.

“The report suggests setting up a new independent advisory panel to decide whether the GAAR applies in any particular case, but that begs the question of who would staff such a panel and given the number of disputes which arise with HMRC one wonders how such a panel would cope with the sheer volume of disputes it would be asked to consider.

“Businesses and individuals that are trying to plan their tax affairs will also be very disappointed that a measure intended to provide clarity on which transactions are acceptable to HMRC may well instead increase the likelihood of tax disputes and their associated costs.”

“HMRC does not have the resources to clear proposed transactions in advance of implementation if a GAAR is introduced. But an advance clearance system is the only sure way to prevent tax disputes. As that’s not going to happen, we are likely to see a significant rise in such disputes.”