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A general anti-avoidance rule (GAAR) for the UK could soon be introduced, following the publication of recommendations by Graham Aaronson QC.
In the final report of his eleven-month review of the feasibility of a GAAR, Mr Aaronson concludes a narrowly focused measure would:
- deter abusive avoidance schemes;
- contribute to providing a level playing field for business;
- reduce legal uncertainty around avoidance schemes;
- help build trust between taxpayers and HMRC; and
- offer opportunities to simplify the tax system.
The paper – which warns against a broad-spectrum GAAR – proposes that an anti-avoidance rule be applied initially to the main direct taxes.
The government will consider the document and discuss with business and tax practitioners the implications of Mr Aaronson’s proposals. Ministers will respond fully at Budget 2012.
Francesca Lagerberg of Grant Thornton commended the team that prepared the paper, because ‘many feared no wording would be achievable’.
She added, ‘There is… still work to be done, and a public consultation is now needed to test this against commercial transactions to ensure they would not be caught. Furthermore, in a stagnant economy, we need to be sure that we do not send out the message that the UK is not open for business.’
Baker Tilly employee benefits partner David Heaton said the recommended GARR would ‘reduce uncertainty’ and ‘act as both a deterrent and a block on schemes that few people would see as reasonable planning’.
Mr Heaton went on to say that ‘the need to show that an arrangement is abusive lies with HMRC, alleviating the burden on taxpayers to prove their innocence’.
The president of the Chartered Institute of Taxation, Anthony Thomas, said the acid test of the GAAR will be whether or not it can ‘focus on the egregious tax schemes that Graham Aaronson rightly has in mind, while not worrying those businesses and advisers that undertake routine transactions’.
Care should be taken before the proposals become regulations, warned Richard Baron, head of Taxation at the Institute of Directors. ‘[The government] must test the idea thoroughly before it gets anywhere near being put into law,’ he remarked.
Adam Cragg, tax partner at RPC, a London-based law firm, was even more cautious about the idea of a GAAR, saying, ‘The UK tax system is already one of the most complex in the world… It is difficult to see the value for taxpayers in yet more anti-avoidance legislation, particularly if it does not apply universally to all disputes.’
He expressed the concern that that the proposals, if implemented, would ‘generate more disputes between taxpayers and HMRC about whether or not the GAAR applies to their circumstances.’
