Tomorrow the GAAR (general anti-abuse rule) enters into force, as Finance Bill 2013 receives Royal Assent.
The idea of introducing an anti-abuse rule has been debated extensively. This new law is a product of its time – marking public and government concern that some schemes have managed to conjure tax savings out of nowhere. The approach of the courts to aggressive tax avoidance has meant that few such schemes actually work. However, the GAAR should make it clear that abusive planning simply will not work.
The GAAR applies to abusive tax arrangements that do not pass what has become known as ‘the double reasonableness test’ having regard to all the circumstances, including the principles on which the legislation was based and whether the planning was intended to exploit any shortcomings. Those advising on or deciding a case may need to refer not just to the legislation but to explanatory notes, ministerial statements and other evidence.
Stephen Coleclough, President of the Chartered Institute of Taxation (CIOT), commented:
“The message for individuals tempted, for example, by schemes that promise more in tax refunds than the original investment is clear. Don’t do it. The tax refund won’t materialise and you may well lose your investment.
“The message for businesses in more nuanced. Abusive planning won’t work, but the complexity of business transactions and our existing law will produce an element of uncertainty. Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their commercial position. The GAAR Guidance should help define what is, and what is not, acceptable. We hope that HMRC and the independent GAAR Advisory Panel will continue to work on helping taxpayers and advisers understand where the GAAR applies and where it does not.
“Tax agents will need to start considering whether the GAAR applies when they complete a client’s self-assessment return. The GAAR guidance makes it clear that much commonplace planning will be unaffected, which is helpful for many taxpayers and advisers alike. However, there is likely to be a long period of uncertainty whilst the GAAR matures.
“The CIOT will be issuing guidance to its members to ensure that they have appropriate processes in place. Where a client has entered into a particular transaction, often on the advice of another party, it will be necessary to consider whether the GAAR applies. Sometimes specialist help will be required to help determine this. The forthcoming revision of the tax profession’s code ‘Professional conduct in relation to taxation’ will include advice about the GAAR.
“Ultimately, the success of the GAAR will be judged on whether the marketing of abusive schemes is reduced and far fewer taxpayers choose to enter into them. A sustained review of the GAAR’s effectiveness will be crucial.”
Notes for editors
1. The Chartered Institute of Taxation
The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 16,800 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
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