Keep an eye open for GAAR

Looming large on the horizon of UK business is a governmenttion and a KPMG partner. proposition to introduce a General Anti Avoidance Rule.

The Chartered Institute of Taxation is actively concerned with its form and possible impact and welcomes the Inland Revenue’s new consultative document on the subject.

But consultation, to be properly conducted, must mean a full and free-flowing exchange of ideas between the government, the taxation authorities and taxpayers. We in the institute are concerned that business, commerce, the unions, and the trade associations are alert to what may turn out to be a fundamental change in the British taxation system, and should make their views known while there is still time.

Should the government introduce a GAAR, there may be many taxpayers who will wish to re-order their business activities overseas. They may want to distance themselves from what they might consider to be an over-demanding tax system in the UK.

So there are reasonable fears that the real effect of imposing the GAAR upon the British taxation system would be a drain of business from the UK. That is an effect that should be considered right from the outset.

It is also probable that a GAAR would load taxation further against the taxpayer, and in favour of the tax authorities, and could therefore prejudice UK business development.

I can see the Revenue flourishing GAAR like a trump card in a game of Bridge. But it would need to provide a comprehensive clearance system for proposed transactions.

That very thought is enough to reduce Revenue enthusiasm. To operate the clearance system would mean a massive diversion of effort from its traditional and very effective methods, namely collecting funds by investigation and enquiry.

GAAR has a fundamental weakness. Like a paper tiger, it may frighten us. But it wouldn’t actually raise much extra revenue; any deal that failed the GAAR clearance hurdle would be promptly abandoned by the businesses concerned.

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