‘Mini-GAAR will hurt business’

Major firms and banks have warned that Customs & Excise’s proposed mini-General Anti-Avoidance Rule will damage businesses’ ability to manage their VAT planning.

Customs finally issued its consultation document two weeks ago seeking comments on two draft legislative approaches to counteracting VAT avoidance on the supply of construction services.

The government department has highlighted the benefits of the new system and is proposing a 30-day advance ‘clearance procedure’ to help the taxpayer.

But members of the Big Five have highlighted what they see as a broad-brush approach which could easily catch out innocent parties.

Ian Somerville, tax partner at PricewaterhouseCoopers, said: ‘The proposals talk about applying the mini-GAAR to a situation where Customs considers that a “normal transaction” has been replaced by a tax-planning one, but this effectively allows Customs to tell businesses how to construct their deals.’

The firm also points out the potential damage of the legislation on financial institutions and charities which cannot currently reclaim their VAT.

KPMG warned that purchasers would be left with considerable uncertainty in their commercial planning, while Arthur Andersen is withholding judgement until this week.

A tax specialist within a FTSE 100 bank, who is planning to make a representation through the British Bankers Association, said that the 30-day period was ‘totally unacceptable’.

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