Goverment publishes much-anticipated GAAR

by Richard Crump

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11 Dec 2012

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Houses of Parliament

THE GOVERNMENT has published its draft 2013 Finance Bill, which includes much-awaited legislation for the General Anti-Abuse Rule (GAAR).

Implementation of the rule is to be delayed until it receives Royal Assent, expected in July 2013, rather than the originally planned date of April next year.

The updated legislation includes a number of amendments to the original proposal, such as clarification about the circumstances that should be taken into account when determining whether arrangements are abusive.

For instance, circumstances now include whether the results of the tax arrangements are consistent with the principles of tax rules and whether the means of achieving them involve contrived or abnormal steps.

"HMRC appears to have taken on board concerns regarding existing arrangements and has provided detailed draft guidance, including a significant number of examples of where the GAAR would and would not apply," said Martin Lambert, tax partner at Grant Thornton UK.

The Finance Bill also includes the first publication of legislation regarding the GAAR advisory panel. The panel is designed to safeguard from inappropriate use of the GAAR by HMRC.

"It was hoped that the advisory panel would provide both clarity and fairness to the taxpayer in the application of the GAAR and in this regard, its importance should not be understated. Unfortunately, however, the legislation confirms that the view of the panel will not be binding on HMRC, requiring only that the panel's view is considered," added Lambert.

As part of the Bill, the rules which determine an individual's tax residence will be judged on a statutory basis from the start of the 2013/14 tax year.

The legislation will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances and contain new rules for the taxation of certain income and gains arising during a period of temporary non-residence.

The new residency test marks a fundamental change to the UK residence rules and reduces the uncertainty for taxpayers and employers. However, the new test is less favourable for UK employers and their employees who leave the UK to work overseas.

"Such employees will be able to spend far less time in the UK than has been the case under previous HMRC practice. Many Brits working overseas making business trips to the UK will need to consider whether they remain UK tax resident under these new rules," said Ben Wilkins, international mobility partner at PwC.

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