GAAR penalties may backfire

The government’s rush to impose tough penalties in tax avoidance cases may be counterproductive.

The Chartered Institute of Taxation (CIOT) has reaffirmed its opposition to the general anti-abuse rule (GAAR) penalty in its response to draft Finance Bill legislation (tinyurl.com/zly65ek). But it is concerned that penalties are being introduced before the GAAR advisory panel has heard a single case and with taxpayers still unsure of what activities will be subject to counteraction.

The CIOT said there was a big risk that the GAAR penalties will be deemed incompatible with the European Convention on Human Rights if they are disproportionate or do not comply with the principles of legal certainty.

As a result in a finely balanced case a GAAR panel or court might be more lenient towards the taxpayer because of the harsh consequences of the 60% of the tax-at-stake penalty.

John Cullinane CIOT’s tax policy...