Tax barrister to lead study into a general anti-avoidance rule

The Government has asked Graham Aaronson, a tax barrister specialising in commercial taxation, to lead a study into a general anti-avoidance rule. In the meantime a number of specific anti-avoidance measures have been announced, some with immediate effect.

The study, to be concluded on 31 October 2011, will consider ‘whether a GAAR could deter and counter tax avoidance, whilst providing certainty, retaining a tax regime that is attractive to businesses, and minimising costs for businesses and HMRC’. Aaronson will be supported by a small group of experts, to be named next month.

The study will seek to establish whether a GAAR could be framed that would be effective in the UK tax system and, if so, how the provisions of the GAAR might be framed, according to the published terms of reference.

It will consider the scope and design of a GAAR capable of meeting the following objectives:

• providing the Government with an effective means of deterring and countering tax avoidance;
• ensuring that the rules work fairly and would not erode the UK tax regime’s attractiveness to business;
• ensuring that certainty about the tax treatment of transactions could be provided without undue compliance costs for businesses and individuals; and
• keeping any increase in resource costs for HMRC to an acceptable level and ensuring that there would be a minimal need for resource to be diverted from other priorities.

The Government would not introduce a GAAR without further formal public consultation, David Gauke, the Exchequer Secretary to the Treasury, told MPs today. He also confirmed that, following consultation, inheritance tax on transfers of property into trust will be brought within the avoidance disclosure regime (DOTAS) with effect from April 2011.

In June the Government announced that it would adopt a ‘more strategic approach’ to the risk of avoidance. ‘By building in sustainable defences to avoidance we will reduce the need for frequent legislative changes and limit the cases when the changes are introduced with immediate effect,’ Gauke said.

But there will be occasions when immediate changes are necessary to address significant avoidance risks, he added. A draft Protocol, setting out the circumstances in which the Government will consider changing legislation with immediate effect, will be published on 9 December, alongside a response document to the consultation on improving tax policy.

Today’s anti-avoidance measures will protect forecast revenues estimated at up to £5 billion over the next four years, and are expected to raise over £2 billion in additional revenue during the course of this Parliament, the Treasury said.

Two measures to take immediate effect will:

• prevent groups of companies using asymmetrical tax treatment of intra-group loans or derivatives to reduce the group’s tax bill (‘group mismatch schemes’), and
• address schemes where a company does not fully recognise certain amounts in its accounts involving loans and derivatives (‘accounting derecognition’).

Three other measures will tackle tax avoidance through:

• addressing the practice of disguised remuneration involving trusts or other vehicles used to reward employees in order to avoid or defer payment of income tax and NICs;
• stopping investment companies retrospectively changing the currency they prepare their accounts in for tax purposes; and
• tackling businesses who artificially split the supply of services to reduce VAT.