GAAR again

Two of the UK’s top tax lawyers told the House of Lords Sub-Committee on the 2013 Finance Bill that plans to introduce a General Anti-Abuse Rule (GAAR) this year will not be able to eradicate multinational tax planning and avoidance.

But it will help clamp down on “certain individuals who have taken tax planning to such levels that they are playing fast and loose with the rules to the point where it is unacceptable... and abusive”.

That’s the view of Graham Aaronson QC, tax barrister and leader of the GAAR (General Anti-Abuse Rule) study group 2011. He was appearing on Monday alongside Malcolm Gammie QC, tax barrister and member of the IFS Tax Law Review Committee. Both have been instrumental in driving government efforts to reduce tax avoidance.

The duo appeared before the peers on Monday in the first of two committee sessions looking into dealing with tax avoidance and how effective the new GAAR may be in addressing various types of tax avoidance recently highlighted in the media.

Aaronson told the committee:

‘Until we have the same tax system throughout the world, it’s inevitable that multi-nationals will locate their companies where it suits them best.’

‘While GAAR “cannot do anything about this”, he said it may be able to make “some extra checks and balances”.’

‘Multi-nationals will locate ownership of their assets in certain jurisdictions to get favourable advantages on a global basis. It makes taxing multinationals very challenging. Even if every tax system in the world was the same, the problem is that it’s so easy to move activities and profits to different jurisdictions.’

Some tax regimes try to attract investment, he said. He pointed to the example Puerto Rico, where half of all the world’s pharmaceuticals are now manufactured as a direct result of a favourable tax regime set up by the US to specifically drive inward investment from the global pharmaceutical industry to the country.

Meanwhile, Malcolm Gammie QC, told the committee:

‘It’s important to remember that GAAR is just one of the weapons that the Revenue deploys to deal with avoidance of one sort or another. It has been successful in stopping most artificial schemes under the Ramsay rules, for example, people who buy and sell guilt strips in less than 24 hours. With this GAAR, such a scheme will just not get off the ground.’

The second session is scheduled for 23 January at 15.35 It will focus more on tax practitioners and technical experts with Patrick Stevens, president of the Chartered Institute of Taxation (CIOT), Bill Dodwell, head of tax policy at Deloitte and vice chairman of the CIOT Technical Committee and Richard Murphy, head of Tax Research LLP and a vociferous critic of corporation tax avoidance.