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GAAR will be ‘one weapon among many’

22nd Jan 2013
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Peers heard yesterday from Graham Aaronson QC and Malcolm Gammie QC that the general anti-abuse rule (GAAR) should have a deterrent effect, but that it will not prevent all forms of tax avoidance.

During a House of Lords sub-committee hearing on Finance Bill 2013, Aaronson said it was essential that the incoming GAAR should operate with as much certainty as possible, however adding it would be “one weapon among many” available to HMRC to tackle avoidance.

He said in theory the legislation could be used to explore stopping multinational tax avoidance, but that in practice it was unlikely to do so. Competition and other more favourable tax regimes would make it inevitable that companies will locate activities in countries which best suit them.

Aaronson said that while it had “gone too far”, large companies would still be able to minimise taxation due to the following three points:

  • Concept of multinationals - trade has changed over the decades and companies can split their functions into different groups, picking any country they want. He said: “Half the world’s trade is between multinational groups”
  • Multiple tax regimes - each individual state has its own tax regime and tax levels for holding companies
  • Double taxation treaties – treaties have had as their concept an arms-length price. With a network of treaties, “the result is chaos, you can't stop it,” he said.

Citing a US pharmaceutical company located in Puerto Rico as an intellectual property base, Aaronson said: “You can’t stop it; it has a favourable tax regime set up by the US.”

Gammie added that taxing multinationals raised a whole range of issues that you have to address specifically and not with a general rule.

The GAAR will be included in Finance Bill 2013, but will not be implemented until it receives Royal Assent in July.

On the GAAR advisory panel, Aaronson said he was “agnostic” on the idea of a figure from HMRC being included and understood the importance of an independent panel.

With regard to guidance notes, they will not be scheduled into the legislation in order to prevent the need to update them in successive bills. The GAAR panel will continually update the guidance, with the notes enshrined in the legislation.

The sub-committee will reconvene on 23 January with further discussions on tax avoidance including evidence from Richard Murphy and CIOT president Patrick Stevens.


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