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Tax bosses have cast doubt on the government’s plan for a general anti-avoidance rule (GAAR), warning it could smooth the progress of the behaviour it is intended to tackle.
As it stands, the GAAR is tightly focussed with the intention of combating only highly abusive, contrived and artificial tax-planning: a set-up that has ‘substantial and unintended risks’, according to the Association of Revenue & Customs (ARC), the trade union for senior HMRC managers.
It claims the rule – recommended by Graham Aaronson QC – might ‘widen perceptions of what is reasonable tax-planning and so make it harder to tackle avoidance’, while the attached advisory panel meant to safeguard the application of what has also been called a general anti-abuse rule ‘will cause taxpayers uncertainty and delay’.
In its official response to the proposal, ARC argues that ‘a narrow GAAR may… serve to legitimise what is currently held to be avoidance. In other words, in the guise of tackling avoidance, it may actually facilitate it.’
Graham Aaronson’s report, which was published in November, warned against a broad-spectrum GAAR – but it is what ARC suggests, claiming a general focus and a ‘properly resourced clearing system’ would be transparent and resolve differing views of the definition of tax avoidance.
‘What the tax-planning community may see as acceptable might not be viewed as such by the majority of the taxpaying public, [which] will tend to use a commonsense definition rather than a legalistic one,’ writes the union.
It goes on to express the hope that the language and operation of the GAAR will be ‘capable of being incorporated into primary legislation on taxation. In this way, we believe it may be possible to align the statutory language and move to a simpler tax code.’
But ARC rejects the Aaronson report’s assertion that avoidance is a response to high tax rates or complex regulations, and says abusive tax-planning ‘can arise from opportunity and a desire to pay less tax’.
The body’s president, Graham Black, added, ‘The general anti-avoidance rule is a Trojan horse, which suggests tough action while actually facilitating avoidance.’
