The news that the Treasury yesterday moved to close down tax
loopholes by passing legislation to retroactively shut down two
aggressive tax avoidance schemes used by Barclays bank will
also bring the
Aaronson GAAR closer to introduction.
Barclays used one scheme which enabled it to repurchase some
of its own debt without paying corporate taxes on the profit
made from this process. The bank said it complies with the
letter and spirit of its obligations under the HMRC Code of Practice.
"This situation arose when Barclays voluntarily disclosed to
HMRC in a spirit of full transparency that it had repurchased
some of its debt in a tax efficient manner," said a company
statement. "This was based on guidance from professional
advisers that the treatment was both legal and compliant with
the tax code, and given others had used a similar
The Treasury’s retroactive changes will date
back to the start of December.
"Barclays respects the decision of HMRC and the government
to adjust the tax laws and will, of course, comply with the
modified law once it is in place," said Barclays.
The CBI had previously opposed uncontrolled general
anti-avoidance rules, on the grounds that such a rule could
create uncertainty for businesses over what constitutes abusive
"We don’t think business is done any favours by
these highly abusive schemes which essentially tar all of us,"
said Will Morris, chairman of the CBI tax committee.
"Therefore if we can come up with a GAAR which walls those
things off and makes it clear that, whatever the words of the
legislation are, HMRC can prevent them from happening, then
we’re all going to be better off. If
that’s the case, then yes, we’re for
it," added Morris.
The reason for such a u-turn from the CBI could be a
realisation that some form of GAAR is unavoidable.
"I think it is inevitable, in the current economic climate,
that some sort of GAAR will be introduced soon," said Robert
Gaut, partner at Fried, Frank, Harris, Shriver & Jacobson.
"The Graham Aaronson proposal is aimed at
"abusive", "egregious" and "abnormal" tax planning. Most people
I’m sure would agree that a scheme fitting those
adjectives should be stopped."
While one might find universal agreement with that
statement, there are difficulties associated with the
introduction of any GAAR, as Gaut identifies. Chief among these
is the fact that it could breed uncertainty and therefore cloud
"The difficulty I see, of course, is that there is no bright
line test that can be objectively applied. All tax avoidance is
legal; otherwise it becomes tax evasion. The position of the
GAAR is that there is a type of extreme, highly artificial tax
avoidance that must be stopped," said Gaut. "However, the
uncertainty that the GAAR will lead to, in the absence of a
clearance process, may be bad for business. The advisory panel
proposed may be somewhat helpful, but that is unlikely to be
available to taxpayers in time to allow specific planned
transactions to complete in required timeframes."
Gaut believes the GAAR could successfully stamp out abusive
tax avoidance schemes, though he points out where the lines may
potentially be blurred.
"Yes, but the difficulty is knowing what "abusive" means.
Maybe, as the CBI suggest, it is those sorts of "black box"
schemes where, essentially, there is no underlying commercial
rationale for the transaction," said Gaut. "However, there are
parts of Aaronson’s report which
suggest that commercial transactions can be combined with
abusive tax results (which would still be the subject of the
GAAR), so the line is obviously not that clear."
The CBI’s director general John Cridland said
that while traditionally there have been two categories
– legitimate tax management which HMRC accepts is
legal, and tax evasion – there is a middle ground too.
The CBI is saying those sort of arrangements may technically be
legal, but that they do not support black box type arrangements
which are strictly non-commercial.
"It’s the first time we’ve said it
directly. It’s quite a statement by the CBI," said
Some observers, including the Tax Justice
Network’s Richard Murphy, are suggesting that the
CBI is now supporting Aaronson’s proposal purely
because they do not believe it will work as effectively as
intended, instead providing mere window-dressing.
However, Gaut proposed that in the face of inevitable
implementation of a GAAR in some form, the CBI might be backing the Aaronson report to avoid the
uncertainty that could come from a
separate GAAR proposal.
"I think the CBI recognises that we are going to have a GAAR
of some sort imposed by the government, and cases like HMRC
v Mayes (the SHIPS2 scheme) make that ever more likely
– this is the case Aaronson refers to in his report,
and where courts were unable to undo its complex tax
structuring, said Gaut. "That being the case, the Aaronson GAAR
is, on its face, very narrowly focused, so it may be perceived
as better to campaign in favour of this for fear that the
alternative may be something more broadly focused and still
Chancellor George Osborne will give his verdict on
Aaronson’s GAAR when he delivers the budget on
March 21. Government has been pressured to do something about
tax avoidance, and recent news headlines referring to deals
with big companies have exacerbated this. But the Public
Accounts Committee (PAC) has moved quickly to censure the
handling of certain tax settlements.
"The PAC has expressed considerable concern about the way in
which tax settlements have been made with large corporates,"
said Dave Jennings, tax investigations at Grant Thornton.
"Complex legislation means that negotiated settlements are
often inevitable, but the move to appoint another commissioner
so cases over £100 million are approved by all three
commissioners is a sensible move to ensure that proper controls
are in place to protect the public purse."
Regardless, the latest controversies surrounding Barclays
could well force Osborne’s hand and certainly make
the prospects of a UK GAAR being contained in the March budget
even more likely.