PracticeConsultingGAAR ‘threat to investment’

GAAR 'threat to investment'

The government's proposed general anti-avoidance rule has provoked a hostile response from business and practice alike. Chris Quick reports.

Fears are growing that the Inland Revenue’s general anti-avoidance rule (GAAR) could threaten inward investment into the UK.

Following last week’s publication of a consultative document on how a GAAR would work, Peter Wyman, senior tax partner at PwC, warned: ‘The proposed GAAR will create a fog of uncertainty for businesses in the UK which will almost certainly drive away much inward investment.’

He added the UK was already becoming less competitive as a base for international companies because of its stance on the euro, and more uniform tax rates across Europe.

A GAAR, he said, would make the UK look even less favourable when companies were deciding where to base their European co-ordination centre or manufacturing base.

‘Quite apart from the unacceptable burden of bureaucracy it would impose on businesses, it is so widely drawn that practically every transaction could be caught,’ he added.

These fears were shared by the Confederation of British Industry. Nicholas Dee, chairman of the CBI’s tax committee, said: ‘We don’t think a GAAR will help the competitiveness of UK Industry generally, and for inward investment it will be a negative factor.’

He had particular concerns over funding arrangements, and added: ‘If you try to achieve tax-efficient financing it could be caught by a GAAR.’

The consultative document has met with widespread criticism from professional bodies in the accountancy sector.

ACCA said it would stifle the bona-fide commercial activities of businesses, while the English ICA said it would hand unacceptable administrative powers and discretion to the Inland Revenue.

An Arthur Andersen survey of FTSE-350 companies, released this week, also underlined the extent of opposition. It showed that 64% of leading companies were opposed to the introduction of a GAAR.

The Big Five firm said the delayed publication of the consultative document, originally promised for early Spring, was testament to the thorny technical and practical issues the measure raised.

The government last week confirmed it would not go ahead with a GAAR until 2000 at the earliest, and would hold a further consultation on the precise wording of any regulation it decided to introduce.

Leader and Comment, page 20.

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