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GAAR back on the agenda

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22nd Jun 2010
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The Budget mapped out a raft of tax-saving measures including the possible revival of a general anti-avoidance rule (GAAR).

"The government is committed to making every effort to tackle tax avoidance," announced Budget Press Notice 3, which maps out a raft of tax-saving measures including the possibility of a general anti-avoidance rule (GAAR).

Last heard of a decade ago, the GAAR is positioned as part of a strategic approach to "develop sustainable responses to avoidance risk" that will be considered by a new tax policy-making committee.

While tackling long-standing avoidance risks in a way that "makes it clear what result the legislation intends to achieve" and reduce the need for frequent legislative changes, the government will continue to clamp down on new avoidance schemes as they emerge. As a result, the rest of the June Budget paperwork includes the usual draft of measures targeting specific schemes, some of which are listed below.

John Whiting, CIOT Tax policy director said: "We are happy to examine the idea of a GAAR, although the underlying concerns that existed when this was looked at in 1999 remain. To provide certainty, a clearance mechanism would be needed; to provide fairness, some of the existing clutter of anti-avoidance rules would have to be abolished.

"Much has changed since a GAAR was last looked at: we have the successful disclosure regime; we have 'TAARs' (targeted anti-avoidance rules) and we have the Courts taking a much stronger line on avoidance. Given all of these, a key question will be whether a GAAR is necessary or adds anything."

For the time being, HMRC's war against the guerrilla forces of the tax avoidance industry continues, with the following announcements targeting specific dodges in the forthcoming Finance Bill:

  • Accounting derecognition An immediate extension of the rules covering the tax treatment of "derecognised" loans and derivative contracts. Profits and losses from loans and derivatives are normally based on a company's accounts. In some circumstances where the cashflows are derecognised in the accounts, tax rules will override accounting practice and require the profits or losses to be computed as if the asset in question had been fully recognised. Further technical guidance will be issued in July and the measure will be effected in the Finance Bill 2011, with effect from a date to be announced. 
  • EFRBS The March Budget crackdown on benefits exemptions for employer-supported childcare schemes and vouchers has been extended to Employer Financed Retirement Benefit Schemes (EFRBS) "which seek to avoid, defer or reduce liabilities of employees and directors to income tax and National Insurance Contributions or to avoid restrictions on pensions tax relief". The legislation will take effect from April 2011.
  • DOTAS extended to Inheritance Tax on trusts The government will consult over the summer about extending the Disclosure of Tax Avoidance Schemes (DOTAS) regime to inheritance tax on trusts.
  • Stamp Duty Land Tax Further changes will be considered to prevent avoidance of SDLT on high value property transactions.
  • Authorised Investment Funds An anti-avoidance measure with immediate effect will prevent corporate investors using Authorised Investment Funds to create a credit for UK tax where no UK tax has been paid.
  • Life insurance companies From 22 June the anti-avoidance rule preventing manipulation of previously unrecognised profits to avoid tax will also have effect where life insurance business is transferred to another company.

Several measures set out by Alistair Darling in his March Budget will be carried through in the new government's Finance Bill, including consortium relief and use of trusts to reward employees. However Labour's plan to require high-risk employers to pay a security of up to £5,000 to deter non-payment of PAYE and NIC liabilities will be deferred for consultation rather than enacted in the Finance Bill 2010 Mark II.

But anti-avoidance isn't just a question of policy rules and legislation. Ahead of the Budget UHY Hacker Young noted there had been a big increase in the amounts of Capital Gains Tax recovered by a new CGT enquiry team. "It shows just how aggressive HMRC is becoming in tackling tax evasion in this area," said tax partner Roy Maugham. With the increase in the main CGT rate and pressure on HMRC to do its bit to reduce the public deficit, UHY Hacker Young predicted "more aggressive compliance work to counteract the subsequent surge in CGT avoidance and evasion it might bring".
 

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By gbuckell
23rd Jun 2010 11:57

GAAR in other countries

It is my understanding that other countries such as Australia and Canada introduced a GAAR some time ago. However, I have never seen any commentary about how well they have worked in practice. Anyone seen anything?

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