The Tax Faculty, along with many other representative bodies, strongly opposed the proposed introduction in 1998 of a general anti-avoidance provision (GAAR) for corporation tax. We considered it too wide-ranging in its ambit and unworkable from a practical perspective. As a result of a barrage of criticism, the proposal was ‘shelved’ by the Government last year. Customs and Excise also proposed a series of mini-GAARs to combat avoidance of VAT, but these too have been shelved.
Are GAARs now dead? It looks unlikely. One Minister ominously described the general GAAR as ‘parked with the engine running’. Meanwhile, the Revenue appears to have a new strategy: the stealthy introduction of mini-GAARs. Tucked away in the proposed ‘tonnage tax’ is a mini-GAAR designed to prevent abuse of the new regime.
Tonnage tax is a new incentive for taxing shipping profits. Instead of charging corporation tax on the shipping profits and gains, shipping companies can elect to be taxed by reference to ship tonnage.
So far, so good. However, the company must not be a party to any transaction or arrangement that is an abuse of the tonnage tax regime. An abuse can include a tax advantage being obtained for another company, or a tonnage tax company in respect of its non-tonnage tax activities, or where the tonnage tax profits are artificially reduced.
The provision is both wide-ranging and extremely vague in its application. If a company falls foul of this provision then, in addition to a number of tax consequences, companies are not allowed to re-enter the tonnage tax for a period of ten years, a highly unusual and draconian penalty.
This new mini-GAAR shows that the debate over the introduction of a GAAR is far from over. No doubt we will see the Revenue slipping in similar clauses in other legislation, paving the way for a reintroduced GAAR in due course. To misquote Churchill, this is not the end of the battle over the GAAR but it is, perhaps, the end of the beginning.
Frank Haskew,Technical ManagerTax Faculty, ICAEW
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