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HMRC releases UK GAAR consultation

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HM Revenue & Customs today released the long-awaited consultation document on the UK general anti-abuse rule (GAAR).

Today’s consultation document provides more detail on the target and scope of the GAAR, including the taxes to which it would apply. The document confirms that it would apply to income tax, corporation tax (including the linked bank levy), capital gains tax, petroleum revenue tax, stamp duty land tax and national insurance contributions (though this will require separate legislation), while VAT would be excluded due to “potentially difficult interactions with the doctrine of abuse of law”.

Francesca Lagerberg, head of tax at Grant Thornton, commented on the presence of many of the provisions recommended by Graham Aaronson QC – the man charged with leading the government’s study group into the feasibility of a UK GAAR.

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“After months of discussion, the GAAR is now out for consultation and closely follows the agenda set by Graham Aaronson QC’s report last year. There is a proposed legislative framework and the promise of an advisory panel and guidance to help the UK come to grips with a new tax world with a broad ranged anti-avoidance provision in place,” said Lagerberg.

In line with Aaronson’s recommendation, the government announced in March’s budget that a broad spectrum anti-avoidance rule would not be beneficial for the UK tax system, favouring instead a more targeted approach.                                                                                                                                               Graham Aaronson

Despite this latest development, there remain the same concerns over the blurry line between complicated but admissible tax planning, and egregious or abusive tax planning.                            

“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,” said Lagerberg.

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David Gauke, Exchequer Secretary to the Treasury said he believes the GAAR would work effectively in tandem with the authorities’ other tools to deter harmful practices.

“A GAAR will strengthen the government’s anti-avoidance strategy and complement the existing tools HMRC has at its disposal to tackle avoidance,” said Gauke. “It will act as a deterrent to those engaging in artificial and abusive avoidance schemes and where such schemes persist the GAAR will improve HMRC’s ability to tackle them effectively.”

David Gauke

The closing date for comments to be submitted is September 14 2012.

International Tax Review has read the 48-page document so you do not have to, with insight from the country's leading advisers.

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