Tax experts have expressed surprise at the government’s proposal to require taxpayers completing self assessment returns to consider whether any of their tax arrangements were ‘abusive’.
‘The government agrees with [Graham Aaronson’s study group’s] recommendation to introduce a rule targeted at artificial and abusive arrangements,’ HMRC said in the consultation document issued on 12 June.
Aaronson did not mention self assessment, but HMRC said taxpayers would be responsible for ‘considering the application of the GAAR’ when filing their self assessment return.
‘The government’s intention is that the GAAR should, as far as possible, operate within existing self assessment regimes (where the relevant tax operates within such a regime),’ it said.
‘Tax recovered under the GAAR should be treated as tax which should have been self-assessed in the relevant return of the taxpayer, and all of the usual consequences of the self assessment regime should follow.’
However, the draft legislation – set out in the consultation document – would require HMRC, not the taxpayer, to make ‘consequential adjustments’ where the GAAR applied. ‘A taxpayer will be able to appeal any decision of HMRC in relation to consequential adjustments to the tribunal, and the tribunal would be able to decide on what consequential adjustments (if any) are just and reasonable,’ HMRC said.
Pat Dugdale, Consultant at Olswang, asked: ‘Realistically, would a taxpayer who has participated in an aggressive tax avoidance scheme self assess on the basis that it does not work?’
That was unlikely, she suggested, except for ‘high profile individuals who fear reputational damage following recent publicity and regret their involvement in such schemes’. Writing in Tax Journal, she expressed the hope that detailed HMRC guidance would enable taxpayers to consider the ‘double reasonableness’ test. But some taxpayers would have ‘difficult self-assessment choices’ to make, she said.
PwC Tax Partner Simon Wilks said the self assessment proposal was surprising and would undermine confidence that the GAAR would be a narrow rule of limited impact. ‘The GAAR will need to be considered in relation to many transactions even if eventually ruled out. The additional administrative burden placed on mainstream taxpayers – not just “extreme avoiders” – is self evident,’ he said.
Wilks added: ‘Not only would a person have to consider substantive law [including existing, targeted anti-avoidance rules], but they would have to consider external factors such as the probable view of the advisory panel and whether HMRC could “show” to a tribunal that all the conditions are met for counteraction. These are not easy considerations for a self assessment regime.’
He argued that the GAAR would be ‘better dealt with by HMRC-initiated direction, as was implicit in the Aaronson proposals’.
Aaronson’s report recommended that a series of safeguards, which would place on HMRC the burden of proving that an arrangement was not ‘reasonable tax planning’. A senior HMRC official would be required to authorise any prospective use of the GAAR.
In the past fortnight leaders of three professional bodies have spoken out against ‘abusive’ tax schemes. CIOT President Patrick Stevens said: ‘If a GAAR can stop abusive practices without preventing legitimate tax planning or introducing damaging uncertainty that will be a positive step.’ ICAEW Chief Executive Michael Izza warned that ICAEW members involved in aggressive tax planning through 'the sorts of schemes highlighted by The Times' were bringing the profession into disrepute. And STEP Chief Executive David Harvey said ‘fairness’ must be an overriding goal of any tax system. ‘Some avoidance schemes undoubtedly fail that test,’ he said in a comment published on Izza’s blog.
Tax experts have expressed surprise at the government’s proposal to require taxpayers completing self assessment returns to consider whether any of their tax arrangements were ‘abusive’.
‘The government agrees with [Graham Aaronson’s study group’s] recommendation to introduce a rule targeted at artificial and abusive arrangements,’ HMRC said in the consultation document issued on 12 June.
Aaronson did not mention self assessment, but HMRC said taxpayers would be responsible for ‘considering the application of the GAAR’ when filing their self assessment return.
‘The government’s intention is that the GAAR should, as far as possible, operate within existing self assessment regimes (where the relevant tax operates within such a regime),’ it said.
‘Tax recovered under the GAAR should be treated as tax which should have been self-assessed in the relevant return of the taxpayer, and all of the usual consequences of the self assessment regime should follow.’
However, the draft legislation – set out in the consultation document – would require HMRC, not the taxpayer, to make ‘consequential adjustments’ where the GAAR applied. ‘A taxpayer will be able to appeal any decision of HMRC in relation to consequential adjustments to the tribunal, and the tribunal would be able to decide on what consequential adjustments (if any) are just and reasonable,’ HMRC said.
Pat Dugdale, Consultant at Olswang, asked: ‘Realistically, would a taxpayer who has participated in an aggressive tax avoidance scheme self assess on the basis that it does not work?’
That was unlikely, she suggested, except for ‘high profile individuals who fear reputational damage following recent publicity and regret their involvement in such schemes’. Writing in Tax Journal, she expressed the hope that detailed HMRC guidance would enable taxpayers to consider the ‘double reasonableness’ test. But some taxpayers would have ‘difficult self-assessment choices’ to make, she said.
PwC Tax Partner Simon Wilks said the self assessment proposal was surprising and would undermine confidence that the GAAR would be a narrow rule of limited impact. ‘The GAAR will need to be considered in relation to many transactions even if eventually ruled out. The additional administrative burden placed on mainstream taxpayers – not just “extreme avoiders” – is self evident,’ he said.
Wilks added: ‘Not only would a person have to consider substantive law [including existing, targeted anti-avoidance rules], but they would have to consider external factors such as the probable view of the advisory panel and whether HMRC could “show” to a tribunal that all the conditions are met for counteraction. These are not easy considerations for a self assessment regime.’
He argued that the GAAR would be ‘better dealt with by HMRC-initiated direction, as was implicit in the Aaronson proposals’.
Aaronson’s report recommended that a series of safeguards, which would place on HMRC the burden of proving that an arrangement was not ‘reasonable tax planning’. A senior HMRC official would be required to authorise any prospective use of the GAAR.
In the past fortnight leaders of three professional bodies have spoken out against ‘abusive’ tax schemes. CIOT President Patrick Stevens said: ‘If a GAAR can stop abusive practices without preventing legitimate tax planning or introducing damaging uncertainty that will be a positive step.’ ICAEW Chief Executive Michael Izza warned that ICAEW members involved in aggressive tax planning through 'the sorts of schemes highlighted by The Times' were bringing the profession into disrepute. And STEP Chief Executive David Harvey said ‘fairness’ must be an overriding goal of any tax system. ‘Some avoidance schemes undoubtedly fail that test,’ he said in a comment published on Izza’s blog.
