Ernst & Young comments on HM Treasury's consultation on a General Anti-Abuse Rule (GAAR)
Claire Hooper, tax partner at Ernst & Young, comments on HM Treasury’s consultation on a General Anti Abuse Rule (GAAR), released today:
A formal consultation was launched today on a new general anti-abuse rule (GAAR) to tackle artificial and abusive tax avoidance schemes.
“The draft legislation has been re-written from the original proposals, produced by Graham Aaronson, but the intention is still to target abusive artificial schemes and not to affect the broad centre ground of tax planning and this is welcome.
“The consultation document makes it clear that the target is a small area of unacceptable but still legal tax avoidance. The devil is in the detail and it is arguable that the scope of the draft proposals is wider than intended and this will increase the uncertainty in UK tax law if this remains the case in the final legislation.
“It has been stated that the aim of the GAAR is to discourage the implementation of wholly artificial schemes. If that is its effect , very little tax will be collected directly from this law as the deterrent will have worked. However there is a risk that in years to come it might be suggested that, as the law hasn't raised significant tax, it needs to be amended and the carefully drafted checks and safeguards could then be removed. This is an area to be carefully guarded against.
“One area where there is still little detail is the composition of the Advisory Panel. It was proposed by Graham Aaronson and taken up in this consultation document that an Advisory Panel could be established to advise on the application of the GAAR to a particular transaction and produce guidance that must be taken into account by a Court in determining whether or not the GAAR applies in a particular scenario. This panel has significant influence over how the GAAR will apply in practice and the composition and operational mechanics of the panel is therefore critical in determining whether the GAAR achieves its intended objectives and its impact on UK competitiveness.”