Dawn Primarolo – The world according to GAAR

In his first Budget, the chancellor of the Exchequer asked the Inland Revenue and Customs & Excise to look at the possibility of introducing a general anti-avoidance rule. The consultative document issued last week is the result of work carried out by the Revenue. Customs will publish its own document later this year.

The document considers only those issues which relate to the corporate sector, where some of the most contrived and costly avoidance takes place.

But if it was considered to be in the wider interests of the Exchequer and of taxpayers as a whole, the government could consider extending its scope at a later date.

Most people accept that the tax burden should be spread fairly across all taxpayers. But artificial tax avoidance undermines fairness in the system, making it fall more heavily, and unnecessarily, on others. This means less money in the public purse to pay for government programmes such as healthcare and education.

The government is determined to make the tax system fairer, and a GAAR could have a role to play in achieving that objective. But it is important to ensure that such a rule, which would be a new step in UK tax law, would be both effective and efficient in its application.

It must deliver what it sets out to do – discourage the future development of contrived avoidance schemes and reduce the existing use of such schemes.

At the same time, it must not damage genuine commercial activity. A carefully constructed GAAR might make a positive contribution not only in preventing tax leakage, but in promoting commercial competition by levelling the playing field.

My expectation, in publishing the consultation document, is that we will have a genuine and open consultation process on both the principle and form of a GAAR, and that the consultation process will inform future decision that this government will take.

I would urge business, the professions and other interested parties to come forward with their views, which are essential to the development of government thinking.

Dawn Primarolo is financial secretary to the Treasury.

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