Draft Finance Bill 2013: HMRC tightens the net on tax avoidance – EY comments on the GAAR

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Chris Sanger, global head of tax policy at EY, comments on the Government’s draft General Anti Abuse Rule (GAAR), published today:

“HMRC’s latest draft of the GAAR is closer to Graham Aaronson QC’s original proposals for a general anti abuse rule than the proposals consulted on in June. Today saw HMRC add some greater focus to the legislation, by linking the ‘double reasonableness’ test to the perceived intention of the relevant tax provisions. The Government has also limited the potential for the GAAR to be applied retrospectively, by bringing in the rules from Royal Assent rather than 1 April this year.

“Based on the draft legislation, the GAAR should apply only to arrangements that are deemed abusive - for example because they involve ‘contrived or abnormal steps’ to achieve unintended results. The GAAR also can’t be used to increase the tax liability of anyone other than the taxpayer who has gained a tax advantage from abusive tax arrangements.

“However, there are still a number of big question marks, which will continue to cause uncertainty for taxpayers until they are resolved. The draft legislation relies on whether or not HMRC has ‘accepted’ that some action is established practice. This leaves a lot to HMRC’s discretion and to, in the future, publicising what was is established practice.”