The government must be clear on what a proposed general anti-abuse rule (GAAR) will achieve, the Chartered Institute of Taxation said in response to today’s consultation paper.
The government must be clear on what a proposed general anti-abuse rule (GAAR) will achieve, the Chartered Institute of Taxation said in response to today’s consultation paper. The tax body noted in a press release that it had warned, in a submission to HMRC earlier this year, that many examples of so-called ‘tax dodging’ highlighted by national media and campaigners would not be caught.
But David Gauke, the Exchequer Secretary, said in a foreword to today’s formal consultation that a broad brush general anti-avoidance rule would ‘risk compromising the certainty that is vital to provide the confidence to do business in the UK’. HMRC has invited comments by 14 September 2012.
The government has proposed that the GAAR should apply to inheritance tax, stamp duty land tax and the proposed annual charge on ‘enveloped property’.
Graham Aaronson’s report to HM Treasury had recommended that the rule should initially apply to ‘the main direct taxes – income tax, capital gains tax, corporation tax, and petroleum revenue tax’, to make its introduction ‘manageable’ for taxpayers and HMRC. ‘At a later stage, when the GAAR is seen to operate fairly and effectively, consideration should be given to including other taxes such as stamp duty land tax. However, it would not be sensible to include VAT, as this tax has its own anti-abuse rules derived from EU law, and applying a UK GAAR in parallel could raise issues of consistency with EU law,’ the report said.
Responding to today’s consultation, CIOT President Patrick Stevens said: ‘The government is right to be proposing a narrowly-targeted GAAR aimed at truly artificial schemes, as recommended by Graham Aaronson. It is important that the government takes the proposal forward as the balanced package that the Aaronson report set out.
‘The proposals contain important safeguards, including especially the advisory panel. However, there is much that still needs 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 The detail of this proposal, including the as yet unpublished schedule, will be crucially important.
Stevens added: ‘Artificial and abusive tax schemes bring the tax system into disrepute. If a GAAR can be framed that stops abusive practices without preventing legitimate tax planning – such as making use of tax reliefs deliberately put in place by government – or introducing damaging uncertainty that will be a very welcome step.’
Francesca Lagerberg, Head of Tax at Grant Thornton, said the proposal followed closely the agenda set by Graham Aaronson: ‘There is a proposed legislative framework and the promise of an advisory panel, and guidance to help the UK come to grips with a new tax world with a broad ranged anti-avoidance provision in place. 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.’
Few would take issue with the government’s aim of countering ‘artificial and abusive tax avoidance’, said Mary Monfries, Tax Partner at PwC.
‘The genuine intent to minimise the impact on "the vast majority of compliant taxpayers" who operate within the "centre ground" of acceptable tax planning is stated clearly and is welcome,’ she said.
‘Questions and concerns remain however, given that the central concepts of the proposed GAAR are inherently subjective – whether arrangements can "reasonably be regarded as a reasonable course of action”. The real risk – at least until there is a body of published guidance as to the actual practical application of the GAAR over a period of years – is that there will be both uncertainty and an additional burden of advice cost on taxpayers who genuinely believe themselves to be in “the middle ground”.’
Heather Self, a Director at Pinsent Masons, said the proposed rule ‘could hurt UK plc’.
‘HMRC’s GAAR proposals are far broader than proposed by the original study group. There’s still time to change the proposals, but the momentum is moving towards a broader rule,’ she said.
‘As things stand, there is a risk that legitimate tax planning will be caught by this rule, especially once things eventually reach the courts. This draft of the GAAR would be a massive headache for UK businesses and individual taxpayers. The current proposals are worrying and I hope the consultation period will see some significant improvements being made.’
Self noted that Aaronson did not recommend the inclusion of inheritance tax. ‘HMRC’s proposals don’t look fully thought through,’ she said.
Impact assessment
HMRC said: ‘The GAAR will support the government’s aim of reducing tax avoidance and will both raise and protect revenue. The revenue impact will reflect the targeting on artificial and abusive avoidance schemes, but will depend on the final design of the proposal. Any final Exchequer impact will be assured by the Office for Budget Responsibility ...
‘The impact on individuals will be on those participating in artificial and abusive avoidance schemes. These are expected to be a small number of relatively affluent taxpayers ...
‘The GAAR may be pro-competitive for some businesses that otherwise would be competing against those enjoying an unfair tax advantage. The GAAR will only impact on businesses participating in artificial and abusive tax avoidance schemes ...
‘The impact on HMRC’s costs is expected to be limited. Significant costs could have arisen from extending clearances but this is not proposed. There will be a cost of running the GAAR Advisory Panel and producing guidance but, in the longer term, there is a possibility of cost savings when abusive avoidance is countered more effectively.’
The government must be clear on what a proposed general anti-abuse rule (GAAR) will achieve, the Chartered Institute of Taxation said in response to today’s consultation paper.
The government must be clear on what a proposed general anti-abuse rule (GAAR) will achieve, the Chartered Institute of Taxation said in response to today’s consultation paper. The tax body noted in a press release that it had warned, in a submission to HMRC earlier this year, that many examples of so-called ‘tax dodging’ highlighted by national media and campaigners would not be caught.
But David Gauke, the Exchequer Secretary, said in a foreword to today’s formal consultation that a broad brush general anti-avoidance rule would ‘risk compromising the certainty that is vital to provide the confidence to do business in the UK’. HMRC has invited comments by 14 September 2012.
The government has proposed that the GAAR should apply to inheritance tax, stamp duty land tax and the proposed annual charge on ‘enveloped property’.
Graham Aaronson’s report to HM Treasury had recommended that the rule should initially apply to ‘the main direct taxes – income tax, capital gains tax, corporation tax, and petroleum revenue tax’, to make its introduction ‘manageable’ for taxpayers and HMRC. ‘At a later stage, when the GAAR is seen to operate fairly and effectively, consideration should be given to including other taxes such as stamp duty land tax. However, it would not be sensible to include VAT, as this tax has its own anti-abuse rules derived from EU law, and applying a UK GAAR in parallel could raise issues of consistency with EU law,’ the report said.
Responding to today’s consultation, CIOT President Patrick Stevens said: ‘The government is right to be proposing a narrowly-targeted GAAR aimed at truly artificial schemes, as recommended by Graham Aaronson. It is important that the government takes the proposal forward as the balanced package that the Aaronson report set out.
‘The proposals contain important safeguards, including especially the advisory panel. However, there is much that still needs 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.
Stevens added: ‘Artificial and abusive tax schemes bring the tax system into disrepute. If a GAAR can be framed that stops abusive practices without preventing legitimate tax planning – such as making use of tax reliefs deliberately put in place by government – or introducing damaging uncertainty that will be a very welcome step.’
Francesca Lagerberg, Head of Tax at Grant Thornton, said the proposal followed closely the agenda set by Graham Aaronson: ‘There is a proposed legislative framework and the promise of an advisory panel, and guidance to help the UK come to grips with a new tax world with a broad ranged anti-avoidance provision in place. 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.’
Few would take issue with the government’s aim of countering ‘artificial and abusive tax avoidance’, said Mary Monfries, Tax Partner at PwC.
‘The genuine intent to minimise the impact on "the vast majority of compliant taxpayers" who operate within the "centre ground" of acceptable tax planning is stated clearly and is welcome,’ she said.
‘Questions and concerns remain however, given that the central concepts of the proposed GAAR are inherently subjective – whether arrangements can "reasonably be regarded as a reasonable course of action”. The real risk – at least until there is a body of published guidance as to the actual practical application of the GAAR over a period of years – is that there will be both uncertainty and an additional burden of advice cost on taxpayers who genuinely believe themselves to be in “the middle ground”.’
Heather Self, a Director at Pinsent Masons, said the proposed rule ‘could hurt UK plc’.
‘HMRC’s GAAR proposals are far broader than proposed by the original study group. There’s still time to change the proposals, but the momentum is moving towards a broader rule,’ she said.
‘As things stand, there is a risk that legitimate tax planning will be caught by this rule, especially once things eventually reach the courts. This draft of the GAAR would be a massive headache for UK businesses and individual taxpayers. The current proposals are worrying and I hope the consultation period will see some significant improvements being made.’
Self noted that Aaronson did not recommend the inclusion of inheritance tax. ‘HMRC’s proposals don’t look fully thought through,’ she said.
Impact assessment
HMRC said: ‘The GAAR will support the government’s aim of reducing tax avoidance and will both raise and protect revenue. The revenue impact will reflect the targeting on artificial and abusive avoidance schemes, but will depend on the final design of the proposal. Any final Exchequer impact will be assured by the Office for Budget Responsibility ...
‘The impact on individuals will be on those participating in artificial and abusive avoidance schemes. These are expected to be a small number of relatively affluent taxpayers ...
‘The GAAR may be pro-competitive for some businesses that otherwise would be competing against those enjoying an unfair tax advantage. The GAAR will only impact on businesses participating in artificial and abusive tax avoidance schemes ...
‘The impact on HMRC’s costs is expected to be limited. Significant costs could have arisen from extending clearances but this is not proposed. There will be a cost of running the GAAR Advisory Panel and producing guidance but, in the longer term, there is a possibility of cost savings when abusive avoidance is countered more effectively.’
