ANY GENERAL anti-avoidance rule (GAAR) would cover the “egregious” tax avoidance schemes and not “centre ground” schemes where there is debate over their validity, the chair of the working group on the subject has said.
Graham Aaronson said his team has developed principles that he hopes will tackle schemes that are an “affront to fair-minded people”.
However, he warned he was still unsure if these principles could be formulated into legislation and that this was the next task for the team.
Aaronson cited the examples of the Ships-2 scheme, run by Matrix Tax Solutions, which required clients to pay into so-called “non-qualifying” life assurance policies and then surrender them in two stages to claim “corresponding deficiency relief”.
HM Revenue & Customs recently lost an appeal on this case at the Court of Appeal. The presiding judge said the decision was “unattractive” to society but the court “cannot lawfully hold” a decision in favour of HMRC.
Currently, judges do not necessarily have the legislation to ban these schemes and because of this, they have applied legislation incorrectly.
This happened in the case of Scottish Providence, he said, which concerned a scheme devised to take advantage of a prospective change in the system of taxing gains on options to buy or sell gilts. Despite this being an “egregious” scheme, the Lords who found in favour of HMRC should not have done so, he said. A GAAR would give judges the tools to ban these schemes, he added.
Because these schemes are obviously solely designed to avoid tax, a clearance system would not be necessary, he also highlighted.
However, Aaronson also pointed out that GAAR would not remove pages of legislation from the statute book.
Aaronson was speaking at the ICAEW tax faculty’s Wyman Symposium. Conference organisers conducted a poll of delegates’ views on whether the UK needed a GAAR or not.
Before hearing Aaronson and other speakers, 27% of the 100-or-so attendees voted for a GAAR, 27% against and 46% were undecided. Following the speeches, including a plea from Aaronson for people to vote “undecided”, 16% voted in favour, 33% against and 51% undecided.
Richard Mannion, partner at Smith & Williamson, said: “It is right to be undecided. My own view is that we have got to the stage where we need to have a GAAR, though I was naïve to think that it will junk a load of anti-avoidance legislation; the message from last night was that that it wouldn’t.”
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