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A formal consultation, together with draft legislation, has been launched on a general anti-abuse rule (GAAR). It follows the Budget 2012 announcement that such a rule will be introduced in 2013.
In line with the recommendations in Graham Aaronson QC’s independent review on the measure, the proposed GAAR will apply to the main direct taxes and National Insurance.
As announced at the Budget, it will be expanded to cover stamp duty land tax. The consultation proposes an extension of the GAAR to inheritance tax and states that it could cover other taxes if appropriate.
The consultation confirms that an advisory panel, with members from both HMRC and business, will be established to give opinions on cases where HMRC propose to apply the GAAR and to develop, update and approve guidance on its use.
Written responses should be submitted by email by 14 September 2012.
Welcoming the government’s decision to allow a good period of time for discussion, Grant Thornton’s Francesca Lagerberg said this would make it possible ‘to look in depth at whether the proposed rule hits the mark of keeping the UK commercial while delivering on the government’s anti-abuse agenda’.
She said ‘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’.
‘The government is right to be proposing a narrowly-targeted GAAR aimed at truly artificial schemes, as recommended by Graham Aaronson’, said Patrick Stevens of the Chartered Institute of Taxation.
Noting that the Aaronson report contained ‘important safeguards’, the institute's president added much has 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 The detail of this proposal, including the as yet unpublished schedule, will be crucially important’.
‘The GAAR will not be accompanied by a repeal of any of the existing anti-avoidance legislation so it is unlikely to bring any simplification to the tax regime in the short term’, noted Mary Monfries of PwC, adding that the reasons for this were explained in the consultation but that it would bring ‘an additional layer of tax law and will disappoint those hoping for short term simplification,’ said Mr Stevens.
