Budget: General anti-abuse rule to tackle ‘morally repugnant’ avoidance

‘I regard tax evasion and indeed aggressive tax avoidance as morally repugnant,’ George Osborne said as he announced that the government had accepted Graham Aaronson’s recommendation that a general anti-avoidance rule would ‘improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business’.

The Budget report published today referred to a ‘general anti-abuse rule’ throughout, suggesting that ‘GAAR’ would no longer mean ‘general anti-avoidance rule’ and reflecting Aaronson’s finding that ‘a broad spectrum general anti-avoidance rule would not be beneficial for the UK tax system’.

John Whiting, Tax Policy Director at the CIOT, said any GAAR needed to be carefully designed to ‘balance the needs of business and individuals for certainty against the Exchequer’s targeting of what the Chancellor described as “morally repugnant” avoidance.’

Patrick Stevens, Tax Partner at Ernst & Young, said the proposed GAAR ‘will increase uncertainty for individuals in managing their tax affairs and may dissuade wealthy entrepreneurs from settling in the UK’. It might ‘sweep in many ordinary tax planning decisions taken by individuals’, he suggested.

Mary Monfries, Tax Policy Partner at PwC, said there was ‘an encouraging sign that the Chancellor recognises the potential for collateral damage to business and mainstream transactions’.

Christian Aid warned that Aaronson’s recommendations concerned only ‘the worst tax avoidance schemes, not the forms of tax avoidance used by some unscrupulous multinational companies that cost developing countries billions in lost tax revenues every year’.

Consultation

The government has decided that the new GAAR should be extended to stamp duty land tax. It will consult on draft legislation for Finance Bill 2013, based on the illustrative clauses in the Aaronson report; establishment of the advisory panel; and the development of full explanatory guidance.

The government was ‘committed to ensuring that this legislation effectively tackles artificial and abusive tax avoidance schemes and that the supporting guidance is practical both for taxpayers and for HMRC’, the Treasury said.

Francesca Lagerberg, Head of Tax at Grant Thornton said: ‘Hard evidence from other jurisdictions that have gone the GAAR route shows how hard it is to formulate a rule that both clarifies what it does and doesn't cover and is practical to implement. Business will be looking closely to ensure that commercial transactions do not get bogged down in cumbersome rules and lengthy clearance procedures.’