Following the Budget announcement that such a rule will be introduced in 2013, the Treasury has publisled a consultation document.
In December 2010 the Government asked Graham Aaronson to lead an independent study to consider whether a GAAR could deter and counter tax avoidance, while retaining a tax regime that is attractive to businesses. The review concluded that the introduction of a targeted rule would deter artificial tax avoidance schemes and contribute to providing a more level playing field for business.
As well as considering Mr Aaronson’s report, the Government has held informal discussions with business, tax practitioners and representative bodies in order to hear their views prior to drawing up the consultation and draft legislation.
In line with Graham Aaronson’s recommendations, the proposed GAAR will apply to the main direct taxes and National Insurance with possible future extensions.
The consultation confirms that the Government is to establish an advisory panel, members of which will come from both HMRC and business, to give opinions on cases where HM Revenue and Customs proposes to apply the GAAR and to develop, update and approve guidance on its use.
David Gauke, Exchequer Secretary to the Treasury, said: “The introduction of a GAAR will strengthen our anti-avoidance strategy, complementing the tools HMRC already has at its disposal and acting as a deterrent to those engaging in artificial and abusive avoidance schemes. The rule we are consulting on will effectively tackle such schemes, while minimising the impact on the vast majority of taxpayers who pay a fair share.”
The Chartered Institute of Taxation (CIOT) welcomed today’s the consultation document, but warned that much work is still needed on the proposals and they should be framed in such a way that they strike a balance between stopping abusive tax practises without preventing legitimate tax planning.
Patrick Stevens, CIOT President, said: “The Government is right to be proposing a narrowly-targeted GAAR aimed at truly artificial schemes, as recommended by Graham Aaronson.
“It is important that the Government takes the proposal forward as the balanced package that the Aaronson report set out. The proposals contain important safeguards, including especially the Advisory Panel. However, there is much that still needs to be done to assure taxpayers that the new rule will not lead to uncertainty and unpredictability in tax, with all the damage that that could do to our economic competitiveness. The detail of this proposal, including the as yet unpublished schedule, will be crucially important.
“Artificial and abusive tax schemes bring the tax system into dispute. If a GAAR can be framed that stops abusive practices without preventing legitimate tax planning – such as making use of tax reliefs deliberately put in place by government – or introducing damaging uncertainty that will be a very welcome step.”
The CIOT also warned that many of the examples of ‘tax dodging’ highlighted by the media and campaigners would not be caught by the GAAR and suggests that the Government must be clear on what the GAAR will, and will not, achieve.
Francesca Lagerberg, Head of Tax, Grant Thornton UK LLP said: "After months of discussion, the General Anti-Abuse Rule or GAAR is now out for consultation and closely follows the agenda set by Graham Aaronson QC's report last year. There is a proposed legislative framework and the promise of an advisory panel and guidance to help the UK come to grips with a new tax world with a broad ranged anti-avoidance provision in place.
"The key will be what is found to be 'abusive' and whether it will be possible to easily differentiate the commercially complex from the purely tax motivated scheme. The indications of what will or won't be caught are likely to be picked over in the courts for many years to come."
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Susie Hughes © Shout99 2012