A number of improvements have been made, but it remains the case that there is a risk that perfectly legitimate tax planning may end up being viewed as abusive
Today saw the publication of the final version of the draft General Anti Abuse Rule ('GAAR'). Commenting on this latest version of the GAAR, Sophie Dworetzsky, partner at international law firm Withers, said:
“The idea of the GAAR of course is to have an over-arching rule that catches aggressive and 'unacceptable' tax planning (whatever that may be) but that doesn't catch anything else, and that helps to achieve a fair tax system. All laudable and good aims, but how does the GAAR measure up?
“Well, on today's showing, there is still a bit of work to do. A number of improvements have been made, especially removing the idea of a 'double reasonableness' test, but it remains the case that there is a risk that perfectly legitimate tax planning may end up being viewed as abusive if it generates normal tax advantages, and taxpayers then having to deal with a potentially length series of debates with the GAAR advisory panel.
"In many ways, this is where the real opportunity has been lost. The GAAR advisory panel will not be independent of HMRC. Had the Advisory Panel been truly independent, this would be a huge step in adding a feeling of greater impartiality to the GAAR, and also likely make its decisions rather more democratic.
“Taxpayers will also have to pay very close attention to guidance issued alongside the GAAR, and this will be a key factor in decision as to whether it applies or not. This leaves a rather unusual state of affairs where guidance seems almost to be being promoted to the same level as legislation, but of course guidance doesn't have the benefit of being reviewed by parliament.
“Finally, but by no means least, the GAAR will sit alongside all existing anti avoidance legislation, although it takes precedence to this. Practically this means that individuals and businesses going about normal planning will face an additional burden in terms of factoring the GAAR and its potentially unexpected results into many normal business transactions, as well as having to continue to monitor the impact of existing rules.
"It is a real shame that where there could have been an opportunity to rationalise the existing medley of anti-abuse rules all that seems, for the moment at least, to be happening is that a further layer is being added. Let's hope that the GAAR does its job well enough that HMRC develops the confidence to remove some of the existing rules.”