The idea of introducing an anti-avoidance rule was first mooted
by Gordon Brown but dropped, and then resurrected by the coalition
in December 2010 when it asked Graham Aaronson QC to consider
whether a general anti-avoidance rule (a GAAR) should be introduced
in the UK.
Graham Aaronson published his report on 21 November 2011,
setting out a recommendation for the introduction of a narrowly
focused general anti-abuse rule (still a GAAR but with the second A
standing for Abuse rather than Avoidance). In April 2012, the UK
Government announced that it would indeed introduce a GAAR targeted
at "artificial and abusive tax avoidance schemes" and, in
December 2012, published the draft legislation to implement the
GAAR which will come into effect in April 2013.
The proposed GAAR, according to HMRC, is intended to have a
narrower application than the general anti-avoidance rules found in
several other jurisdictions and its purpose is "to deter and
counter abusive tax avoidance, while providing certainty, retaining
a tax regime that is attractive to businesses, and minimising costs
for taxpayers and HMRC".
Whilst HMRC acknowledge that it is reasonable for a taxpayer to
pursue a legal course which improves his economic position and it
aims only "to counteract tax advantages arising from abusive
arrangements", the proposed GAAR is not as narrowly focused as
the rule originally recommended by Graham Aaronson.
It is hoped the proposed GAAR will bring an end to abusive tax
avoidance schemes "which, because they are often complex
and/or novel, would not have been contemplated directly when
formulating the relevant tax legislation." If 2012 was the
year of exposure (by the media) of abusive schemes, 2013 may be the
year such schemes are closed down.
Whether the proposed GAAR will bite will depend upon the answers
to the following four questions:
Are there arrangements which give rise to a tax advantage?
Does the tax advantage relate to one of the taxes to which the
Is it reasonable to conclude that the obtaining of a tax
advantage was the main purpose, or one of the main purposes, of the
Are the arrangements abusive?
Whilst the first and second questions are more objective, the
third and fourth are more subjective and depend upon what is deemed
reasonable or unreasonable (by HMRC rather than the media).
Once it has been reasonably concluded that, having regard to all
the circumstances, the obtaining of a tax advantage was the main
purpose, or one of the main purposes, of the arrangements, the
taxpayer must then consider whether the arrangements are
Tax arrangements will be considered as abusive if they fail the
so-called "double reasonableness test": if entering into
or carrying the arrangements out cannot reasonably be regarded as a
reasonable course of action in relation to the relevant tax
provisions, having regard to all the circumstances.
The Channel Islands take a zero tolerance stance on tax abuse
and both the Jersey and Guernsey Financial Services Commissions
have been effective in closing down abusive schemes.
Jersey and Guernsey should therefore welcome the GAAR provided
that once finalised and the promised guidance has been published,
it does bring clarity and certainty to the often complex UK tax
Much, though, will depend on how this new tool is actually used
by HMRC, who already have many other tools at their disposal to
deal with abusive schemes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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