The Institute of Directors has welcomed Graham Aaronson’s report on a possible general anti-avoidance rule (GAAR) and noted that the report recommends a well-targeted, moderate rule that ‘should only bite on tax planning that is clearly abusive’.
The Institute of Directors has welcomed Graham Aaronson’s report on a possible general anti-avoidance rule (GAAR) and noted that the report recommends a well-targeted, moderate rule that ‘should only bite on tax planning that is clearly abusive’.
► Aaronson recommends anti-abuse rule to deter ‘egregious’ tax avoidance |
‘As such, most businesses will not be worried by it,’ the IoD said. The boundary between abusive and non-abusive planning would remain hazy, however.
‘It must not be so hazy that people are wary of undertaking the legitimate tax planning that is needed to allow decent post-tax returns to be made in the UK. If that happened, international capital would be scared away.’
Richard Baron, Head of Taxation at the IoD, said: ‘This is a very measured and sensible report on a possible GAAR. The government should certainly use it as the basis for a formal consultation.
'But we must test the idea thoroughly before it gets anywhere near being put into law. If we get evidence that it would generate uncertainty, that problem will have to be fixed.’
Richard Murphy, Director of Tax Research LLP and campaigner against tax avoidance, said Aaronson’s report was ‘a very big step forward for tax justice’. The proposed rule would mean that ‘no one is now obliged, even in their wilder moments, to mention these egregious schemes any more: they can simply say they are sure they will fail, and as such can recommend clients to ignore them’.
TUC General Secretary Brendan Barber said a GAAR would make it ‘far harder for the super-rich to hide behind tax loop-holes’. Abuse of the tax system was ‘widespread’ amongst major companies and wealthy individuals, he said. ‘At a time of austerity when ordinary people are so hard-pressed financially, it's morally wrong for ministers to tolerate corporate tax avoidance on such a grand scale.’
‘In a time of forced austerity and cuts the public will no longer tolerate abuse of the tax system by super-rich individuals and corporations, or government inaction on this issue,’ a spokesman for UK Uncut told Tax Journal.
James Bullock, Partner at the law firm McGrigors, said most of his firm’s business clients were in principle opposed to a GAAR.
‘We believe that it has the potential to create considerable uncertainty for business – particularly in relation to the tax efficient structuring of commercial transactions. This is the last thing business needs in these difficult times,’ he said.
‘The concern is that a GAAR could give activists a stick to beat business with. They might argue that any tax planning that has not been expressly cleared is unlawful and unacceptable ... Contrary to what activist groups seem to believe, tax is complex and businesses are entitled to arrange their tax affairs efficiently. They certainly do not have a duty to ensure that they pay as much tax as possible.’
However, the firm recognised the ‘considerable’ pressure for an anti-abuse mechanism of some kind. ‘If we have to have one the proposals of the working group do provide safeguards sufficient to enable us to give the proposals a cautious welcome,’ Bullock added.
Mary Monfries, regulation and policy tax partner at PwC, said it was crucial that a period of consultation be used to ‘road-test’ the proposals to ‘ensure that there is no negative impact on the UK's growth agenda and specifically the UK remaining a competitive place to do business and create jobs’.
Jonathan Hornby, Senior Director with tax advisers Alvarez & Marsal Taxand UK, observed that many of the biggest multinationals ‘build tax planning around commercial change’ and, therefore, should not be affected by a GAAR.
‘The real fear is that those companies whose tax planning may be assessed more subjectively will be put off by the uncertainty,’ he said. ‘They will simply shift their profits out of the UK to achieve the same savings. This could cost the UK billions in lost investment and will hit UK jobs at a time when unemployment is at its highest level for 17 years.’
Francesca Lagerberg, Head of Tax at Grant Thornton, said Aaronson’s report was ‘the next stage in the delicate balance to marry the freedom of a taxpayer to legally arrange their affairs in such a way that they pay less tax than they otherwise would and the desire of the state to collect in a reasonable way as much revenue as it believes it should’.
‘In our complex world such issues are rarely black and white,’ she said. ‘The hope behind a GAAR was to find a form of words that would have statutory force and deter taxpayers from contemplating egregious tax planning by having a simple rule to make such planning ineffective. It might also lead in time to the removal of the cumbersome range of often uncertain anti-avoidance legislation that litters our tax system.
‘Now we have a proposal, the team behind it are to be commended for getting to this stage as many feared no wording would be achievable. There is, however still work to be done and a public consultation is now needed to test this against commercial transactions to ensure they would not be caught. Furthermore, in a stagnant economy we need to be sure that we do not send out the message that the UK is not open for business.’
Frank Haskew, Head of the ICAEW Tax Faculty, said the Aaronson report was ‘a helpful addition to the consideration of how best to deal with what the government considers to be unacceptable tax avoidance.’
The Chartered Institute of Taxation said the report was an important contribution to the debate. ‘The report is a well-argued paper but the CIOT believes there is still a good deal of work to be done on the issues raised.’
CIOT President Anthony Thomas said: ‘If the government takes the GAAR report forward, it must do so as the balanced package that the Aaronson report sets out. The proposals contain important safeguards, including especially the review panel. This is not a pick and mix package.
‘The acid test will be whether a GAAR can really focus on the egregious tax schemes that Graham Aaronson rightly has in mind, whilst not worrying those businesses and advisers that undertake routine transactions.
‘The report rightly talks about an anti-abuse rule, not just anti-avoidance. A very significant risk, as Graham recognises, is that the UK adopts something that increases uncertainty and damages the reputation of the UK internationally as a location where the tax law is clear.
‘If the GAAR is developed into something that allows the UK to dispense with some of the forest of anti-avoidance rules that clutter our tax code, then the Aaronson group will have rendered the UK a valuable service. But that may not happen for some time and so one concern for the CIOT is that the GAAR may be superimposed on existing law.’
Concerns over the possibility of overlapping provisions were echoed by Jeremy Cape, Tax Partner at lawyers SNR Denton. ‘It appears that the GAAR principle will sit above existing targeted anti-avoidance rules, and there will be limited scope for repeal of [those rules],’ he said.
‘So, for example, the controlled foreign company, offshore funds and transfer pricing rules will probably remain alongside the new GAAR, despite some apparent overlap. Whilst this is because the GAAR and the targeted anti-avoidance rules are fulfilling different functions, it would be a shame if there were not some accompanying repeal of certain existing rules.’
Stephen Goldstraw, Tax Partner at the law firm Manches, noted that the focus of the Aaronsons report was on striking down ‘flagrant’ schemes, which sometimes fail for technical reasons.
‘Usually, however, they fail because a judge says they fail. Judges have their own version of a GAAR already in operation and can use it to strike down pretty much any idea they think it is unpalatable. You will have to search for a long time to find the last time a judge decided that a flagrant tax avoidance scheme actually worked to produce the intended result,’ he said.
The fact that a flagrant tax avoidance scheme will seldom survive a challenge through the Courts ‘has not led to their disappearance’.
He added: ‘The users of such schemes know there is always a fairly good chance that their scheme will not actually be challenged by HMRC – due to lack of manpower or an oversight – or that any challenge will peter out before the Courts are involved. Whether a legislative GAAR will change this position remains to be seen.’
The Institute of Directors has welcomed Graham Aaronson’s report on a possible general anti-avoidance rule (GAAR) and noted that the report recommends a well-targeted, moderate rule that ‘should only bite on tax planning that is clearly abusive’.
The Institute of Directors has welcomed Graham Aaronson’s report on a possible general anti-avoidance rule (GAAR) and noted that the report recommends a well-targeted, moderate rule that ‘should only bite on tax planning that is clearly abusive’.
► Aaronson recommends anti-abuse rule to deter ‘egregious’ tax avoidance |
‘As such, most businesses will not be worried by it,’ the IoD said. The boundary between abusive and non-abusive planning would remain hazy, however.
‘It must not be so hazy that people are wary of undertaking the legitimate tax planning that is needed to allow decent post-tax returns to be made in the UK. If that happened, international capital would be scared away.’
Richard Baron, Head of Taxation at the IoD, said: ‘This is a very measured and sensible report on a possible GAAR. The government should certainly use it as the basis for a formal consultation.
'But we must test the idea thoroughly before it gets anywhere near being put into law. If we get evidence that it would generate uncertainty, that problem will have to be fixed.’
Richard Murphy, Director of Tax Research LLP and campaigner against tax avoidance, said Aaronson’s report was ‘a very big step forward for tax justice’. The proposed rule would mean that ‘no one is now obliged, even in their wilder moments, to mention these egregious schemes any more: they can simply say they are sure they will fail, and as such can recommend clients to ignore them’.
TUC General Secretary Brendan Barber said a GAAR would make it ‘far harder for the super-rich to hide behind tax loop-holes’. Abuse of the tax system was ‘widespread’ amongst major companies and wealthy individuals, he said. ‘At a time of austerity when ordinary people are so hard-pressed financially, it's morally wrong for ministers to tolerate corporate tax avoidance on such a grand scale.’
‘In a time of forced austerity and cuts the public will no longer tolerate abuse of the tax system by super-rich individuals and corporations, or government inaction on this issue,’ a spokesman for UK Uncut told Tax Journal.
James Bullock, Partner at the law firm McGrigors, said most of his firm’s business clients were in principle opposed to a GAAR.
‘We believe that it has the potential to create considerable uncertainty for business – particularly in relation to the tax efficient structuring of commercial transactions. This is the last thing business needs in these difficult times,’ he said.
‘The concern is that a GAAR could give activists a stick to beat business with. They might argue that any tax planning that has not been expressly cleared is unlawful and unacceptable ... Contrary to what activist groups seem to believe, tax is complex and businesses are entitled to arrange their tax affairs efficiently. They certainly do not have a duty to ensure that they pay as much tax as possible.’
However, the firm recognised the ‘considerable’ pressure for an anti-abuse mechanism of some kind. ‘If we have to have one the proposals of the working group do provide safeguards sufficient to enable us to give the proposals a cautious welcome,’ Bullock added.
Mary Monfries, regulation and policy tax partner at PwC, said it was crucial that a period of consultation be used to ‘road-test’ the proposals to ‘ensure that there is no negative impact on the UK's growth agenda and specifically the UK remaining a competitive place to do business and create jobs’.
Jonathan Hornby, Senior Director with tax advisers Alvarez & Marsal Taxand UK, observed that many of the biggest multinationals ‘build tax planning around commercial change’ and, therefore, should not be affected by a GAAR.
‘The real fear is that those companies whose tax planning may be assessed more subjectively will be put off by the uncertainty,’ he said. ‘They will simply shift their profits out of the UK to achieve the same savings. This could cost the UK billions in lost investment and will hit UK jobs at a time when unemployment is at its highest level for 17 years.’
Francesca Lagerberg, Head of Tax at Grant Thornton, said Aaronson’s report was ‘the next stage in the delicate balance to marry the freedom of a taxpayer to legally arrange their affairs in such a way that they pay less tax than they otherwise would and the desire of the state to collect in a reasonable way as much revenue as it believes it should’.
‘In our complex world such issues are rarely black and white,’ she said. ‘The hope behind a GAAR was to find a form of words that would have statutory force and deter taxpayers from contemplating egregious tax planning by having a simple rule to make such planning ineffective. It might also lead in time to the removal of the cumbersome range of often uncertain anti-avoidance legislation that litters our tax system.
‘Now we have a proposal, the team behind it are to be commended for getting to this stage as many feared no wording would be achievable. There is, however still work to be done and a public consultation is now needed to test this against commercial transactions to ensure they would not be caught. Furthermore, in a stagnant economy we need to be sure that we do not send out the message that the UK is not open for business.’
Frank Haskew, Head of the ICAEW Tax Faculty, said the Aaronson report was ‘a helpful addition to the consideration of how best to deal with what the government considers to be unacceptable tax avoidance.’
The Chartered Institute of Taxation said the report was an important contribution to the debate. ‘The report is a well-argued paper but the CIOT believes there is still a good deal of work to be done on the issues raised.’
CIOT President Anthony Thomas said: ‘If the government takes the GAAR report forward, it must do so as the balanced package that the Aaronson report sets out. The proposals contain important safeguards, including especially the review panel. This is not a pick and mix package.
‘The acid test will be whether a GAAR can really focus on the egregious tax schemes that Graham Aaronson rightly has in mind, whilst not worrying those businesses and advisers that undertake routine transactions.
‘The report rightly talks about an anti-abuse rule, not just anti-avoidance. A very significant risk, as Graham recognises, is that the UK adopts something that increases uncertainty and damages the reputation of the UK internationally as a location where the tax law is clear.
‘If the GAAR is developed into something that allows the UK to dispense with some of the forest of anti-avoidance rules that clutter our tax code, then the Aaronson group will have rendered the UK a valuable service. But that may not happen for some time and so one concern for the CIOT is that the GAAR may be superimposed on existing law.’
Concerns over the possibility of overlapping provisions were echoed by Jeremy Cape, Tax Partner at lawyers SNR Denton. ‘It appears that the GAAR principle will sit above existing targeted anti-avoidance rules, and there will be limited scope for repeal of [those rules],’ he said.
‘So, for example, the controlled foreign company, offshore funds and transfer pricing rules will probably remain alongside the new GAAR, despite some apparent overlap. Whilst this is because the GAAR and the targeted anti-avoidance rules are fulfilling different functions, it would be a shame if there were not some accompanying repeal of certain existing rules.’
Stephen Goldstraw, Tax Partner at the law firm Manches, noted that the focus of the Aaronsons report was on striking down ‘flagrant’ schemes, which sometimes fail for technical reasons.
‘Usually, however, they fail because a judge says they fail. Judges have their own version of a GAAR already in operation and can use it to strike down pretty much any idea they think it is unpalatable. You will have to search for a long time to find the last time a judge decided that a flagrant tax avoidance scheme actually worked to produce the intended result,’ he said.
The fact that a flagrant tax avoidance scheme will seldom survive a challenge through the Courts ‘has not led to their disappearance’.
He added: ‘The users of such schemes know there is always a fairly good chance that their scheme will not actually be challenged by HMRC – due to lack of manpower or an oversight – or that any challenge will peter out before the Courts are involved. Whether a legislative GAAR will change this position remains to be seen.’
