Like Dracula, the idea of a GAAR will not lie down.
In a Budget press release the government indicated that it will examine whether a general anti-avoidance rule should be implemented. The problems with a GAAR are well documented: uncertainty as to what constitutes avoidance – including whether taking advantage of a relief in unanticipated circumstances constitutes avoidance; uncertainty as to how the judiciary will interpret a GAAR; an increase in uncertainty (unless there is a quick clearance procedure); and increased fees if professionals have to advise on the arrangements and then HMRC charge for providing a clearance.
Eleven years ago the previous administration decided not to proceed with a GAAR. Nowadays HMRC have even less need for a GAAR given the 2004 disclosure regime and the number of legislative provisions already hedged around with so called “targeted” anti-avoidance rules: and of course the Emergency Budget introduced yet further specific anti-avoidance rules.
Also, a GAAR would seem to be at odds with the policy of introducing “predictability, stability and simplicity” in the tax system. The most immediate implication of the announcement is for businesses and the tax profession to remind the Treasury and the Government of the drawbacks of a GAAR. If a GAAR is introduced, advisers will need to be prepared to express a view on the likelihood of a transaction being successful with the possibility of judicial activism beyond that faced by taxpayers already.
It may be little comfort to advisers and users of the tax legislation that one effect of a GAAR might be less prescriptive legislation as HMRC might be prepared to rely on the GAAR as a “backstop”. Arguably, HMRC do not need a GAAR if the legislation is less prescriptive as there is more scope for a “Scottish Provident” approach to interpretation by the tax judiciary. In the meantime, well-prepared advisers may wish to review the different judicial approaches in jurisdictions that have introduced a GAAR.
Gary Richards is tax partner at Berwin Leighton Paisner
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