GAAR

The introduction of the general anti abuse rule (GAAR) is to be delayed. It will now come into force from royal assent to the Finance Bill 2013 in July, instead of from 1 April 2013 as originally planned.

A number of new amendments have been made to the draft legislation to reflect the comments received. Key among the changes is the “double reasonableness test”, the wording of which has been clarified to ensure that the GAAR operates as intended.

The list of example indicators of abusive tax arrangements has also been amended and the revised legislation includes an example indicator of non-abusive arrangements.

Meanwhile, the provisions dealing with counteraction and consequential adjustments have been expanded, and the legislation makes it clear that the consequential adjustments can only reduce a person’s liability to tax.

The updated draft legislation sets out the procedural requirements relevant to the application of the GAAR by HMRC. This includes details of the role in this process of the GAAR Advisory Panel.

The GAAR will have effect in relation to any tax arrangements entered into on, or after, the date of Royal Assent to Finance Bill 2013.

Patrick Stevens, Chartered Institute of Taxation (CIOT) president, said: ‘This is an example of good consultation and the result is a rule that is evolving sensibly. We and many other groups have been in very active dialogue with HMRC and it is good to see they have listened.

‘A number of changes – including the ‘double reasonableness’ test – reflect points we have made and although not all of our concerns have been met, we are getting towards a workable rule that will be effective against abusive schemes whilst not getting in the way of general business planning.’

He said he was particularly “pleased to see publication of the document setting out 15 situations with HMRC’s views on whether or not the GAAR applies” and welcomed the delay in implementation.

‘This delay is something we argued for as we really do need the extra time to debate the examples and the draft guidance and make sure they all get to the right answer, ‘ said Stevens. ‘From a first look at the draft guidance, it does need work to make sure it helps taxpayers and their advisers with the areas of uncertainty that will inevitably arise under the GAAR.’

But John Overs, head of corporate tax at City law firm Berwin Leighton Paisner, was less upbeat: ‘The draft legislation released today fails to lift the cloud of uncertainty that surrounds the operation of the proposed GAAR, partly due to the many nuances and subtleties it includes. The panel is a limited safeguard for taxpayers but ultimately too much discretion is left to HMRC and the courts, especially where the arrangements in question fall beyond the examples given in the guidance or are not sanctioned by previous clear and unequivocal HMRC practice.

‘As a result, there is a risk that changes in the views of HMRC regarding the line between reasonable and unreasonable behaviour, and the intensifying debate over ‘morality’ in the tax system, will make it harder and harder for businesses to plan with any certainty – a crucial component of sound investment decisions.’