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New anti-avoidance rules contain gaping holes, warn experts

7th Dec 2010
Deputy Editor Sift Media
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The Treasury is launching a review into introducing a general anti-avoidance rule (GAAR), but the proposed measures are unlikely to solve the problem, tax experts have warned.

Exchequer secretary David Gauke announced a raft of new measures to tackle tax avoidance, including the introduction of a new GAAR, which he said would “maintain fairness for the taxpayer, whilst providing certainty for businesses whose investment will encourage the re-balancing of the economy and job creation”.

The study will be completed by next October and is being carried out by a small group of experts headed by Graham Aaronson QC, a barrister who has acted on behalf of multinationals in numerous tax cases.

The controversial measure was first mooted in the chancellor’s June Budget, but tax experts warned that some of the existing anti-avoidance rules would have to be abolished in order to make the new rules fair and transparent.

“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, we cannot see that there is an obvious gap for a GAAR to fill,” said John Whiting, tax policy director for the Chartered Institute of Taxation (CIOT).

Commenting on the proposals, Richard Murphy, director of Tax Research LLP wrote: “There is no doubt a GAAR is the wrong direction of travel – simply because it creates a rule and the tax profession thinks rules are made to be abused. A General Anti-avoidance Principle would be much better, especially if it included a change to the rules of interpretation so that a purposive construction had to be applied to tax law”.

More bureaucracy for business
The GAAR would not prevent many tax disputes from ending up in costly court battles, warned tax investigations specialists McGrigors LLP.

"The problem is that there will inevitably be a situation – probably many situations – where commercial pressures mean that transactions have to be completed before specific HMRC clearance can be obtained confirming that they do not fall foul of a GAAR,” said James Bullock, a tax partner at McGrigors.

“You will then have precisely the situation that applies at the moment – HMRC challenging the tax treatment of transactions after the event, on the basis that the GAAR applies. Taxpayers will oppose these challenges and the whole thing will end up being interpreted by the courts – just as happens at the moment.

"If this is the ultimate result, what is the net gain? The downsides are a lot more bureaucracy and uncertainty for business,” he added.

Business lobby group the CBI also spoke out against the proposals, with the head of its tax committee Will Morris arguing: “We believe this would not be in the interest of the government, taxpayers, or UK competitiveness. It would introduce a very unwelcome element of uncertainty to the tax system.”

The government will publish a draft protocol on 9 December that it says will “set out the circumstances in which it will consider changing legislation with immediate effect”.

“It seems as though the government's primary aim is to kick the GAAR into the long grass. By 2013 the government will be starting to look towards the next general election and implementing something as complex as a GAAR is unlikely to be a priority,” said Bullock.


Replies (4)

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Mark Lee 2017
By Mark Lee
07th Dec 2010 19:07

Get Aware And Realistic. There are NO proposals for a GAAR

I tend to agree with James' conclusion as quoted at the end of this article:

“It seems as though the government's primary aim is to kick the GAAR into the long grass."

I've suggested much the same thing on my blog today.

Mark Lee

Thanks (0)
By Vaughan Blake
08th Dec 2010 18:49

GAAR ; a one way street?

I have a case on my desk at the moment where the tax rules have contrived to reach a result which is blatantly unfair to two orphaned children and thus, hopefully, cannot be what was intended by the legislators.  Everyone accepts that the position is unfair but I am told by HMRC (as expected) "sorry, rules are rules and there is no equity available in tax law". 

Would the flipside of a GAAR be a "general reasonableness rule" (a GRR!)?  I think not. 

I intend to continue to fight HMRC in this case and will post the position on Any Answers labelled "Most Unfair".  So any help would be appreciated.

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By Trevor Scott
09th Dec 2010 08:55

"sorry, rules are rules and there is no equity available in tax

I hope that was either tape recorded or on paper.

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