HM Revenue & Customs release the much-anticipated GAAR consultation document
A CONSULTATION DOCUMENT on the general anti-abuse rule has been released by HM Revenue & Customs, as it looks to clamp down on the practice of tax avoidance.
In his foreword to the document, Exchequer secretary David Gauke said the government “accepts” Graham Aaronson’s conclusions on the rule and added a “‘broad spectrum’ would not be beneficial for the UK tax system”.
The rule would apply to income tax, corporation tax, capital gains tax, petroleum revenue tax and national insurance contributions, while VAT will be excluded due to potential difficulty over the way it interacts with abuse law. Inheritance tax and stamp duty land tax would also be included.
It will operate by using a “main purpose or one of the main purposes” test, which will be used to determine whether a scheme is artificial.
The test will recognise that incidental steps taken to minimise tax liability in arrangements will not usually constitute a main purpose. Whether a purpose is main or not is a question of fact under the test.
The government, the document said, “must ensure sufficient certainty… vital to provide confidence to do business in the UK”, and the rule will apply where “tax arrangements” and “abusiveness” tests are met.
The proposed rule is intended to have a narrower scope than other similar legislation in other countries, and is designed to leave what the report describes as the “centre ground of tax planning”.
Tax arrangements are considered abusive if:
– An arrangement cannot be regarded as a reasonable course of action, with regard to all relevant tax provisions, the substantive results of the arrangements, any other schemes of which the arrangement forms a part
– Any principles upon which they are based, whether expressed or implied, their policy objectives and any shortcomings in them are intended to exploit
– The arrangement results in a profit for tax purposes which is significantly less than the amount for economic purposes
– The arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes
– The arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid
– The arrangements involve a transaction or agreement the consideration for which is an amount or value significantly different from market value or which otherwise contains non-commercial terms.
Grant Thornton’s head of tax, Francesca Lagerberg, claimed it is crucial the framework effectively identifies abusive schemes.
She said: “The key will be what is found to be ‘abusive’ and whether it will be possible to easily differentiate the commercially complex from the purely tax motivated scheme. The indications of what will or won’t be caught are likely to be picked over in the courts for many years to come.”