THE GENERAL ANTI-ABUSE RULE on tax avoidance has too much potential to be arbitrary and cause uncertainty, according to law firm Berwin Leighton Paisner.
Critics of the rule have expressed concerns that leaving the application of the rule open to interpretation could impinge on legitimate business transactions.
Berwin Leighton Paisner head of corporate tax John Overs echoed those concerns as the consultation period for commenting on the proposals comes to an end today.
He said: “Asking taxpayers to assess their tax on the basis of what is ‘reasonable’ behaviour will be inherently unpredictable and inconsistent – exactly the opposite of what our tax system needs. The proposals accept this uncertainty by relying upon guidance and the opinions of a panel to make the GAAR work as intended.
“However, well-written laws should function properly without the need to be supplemented by the opinions of an extra-judicial body such as the advisory panel and guidance that is not approved by parliament.”
The legislation would apply to income tax, corporation tax, capital gains tax, petroleum revenue tax, national insurance contributions, inheritance tax and stamp duty land tax. VAT was not included due to potential difficulty in the way it interacts with abuse law.
The crux of the rule is to catch “abusive” and “egregious” tax planning and is intended to have a narrower scope than similar legislation in other countries. Instead, it is designed to leave what the initial the report described as the “centre ground of tax planning”.
The abusiveness of a scheme would be determined by a “main purpose or one of the main purposes” test, which will determine whether an arrangement is artificial.
The test is designed to allow for incidental steps taken to minimise tax liability in arrangements. Whether a purpose is main or not is a question of fact under the test.
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