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Anti-abuse rule will safeguard ‘the centre ground’ of responsible tax planning, says Aaronson

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There will be no need for a system of tax clearances to accompany a targeted anti-abuse rule because ‘the centre ground of responsible tax planning’ will be unaffected, Graham Aaronson QC said in his report on the merits of a general anti-avoidance rule.

Aaronson’s review, conducted for HM Treasury, concluded that ‘purposive interpretation [of tax legislation], specific anti-avoidance rules and DOTAS [the disclosure of tax avoidance schemes regime introduced in 2004] are not capable of dealing with some of the most egregious tax avoidance schemes’.

However, a ‘broad spectrum’ GAAR would carry a ‘real risk of undermining’ the ability of business and individuals to carry out responsible tax planning, he said.

An advance clearance system would be needed to reduce that risk, but such a system would impose ‘very substantial’ resource burdens on taxpayers and HMRC. ‘It would also inevitably in practice give discretionary power to HMRC who would effectively become the arbiter of the limits of responsible tax planning.’

‘Abusive tax result’

Aaronson’s draft GAAR counteracts ‘abnormal’ arrangements that are contrived to achieve an ‘abusive tax result’. For this purpose:

  • An ‘abusive tax result’ is defined as an advantageous tax result that would be achieved by an arrangement that is neither ‘reasonable tax planning’ nor an arrangement ‘without tax intent’.
  • An abnormal arrangement is ‘contrived to achieve an abusive tax result’ if the inclusion of any ‘abnormal feature’ can reasonably be considered to have as its sole purpose, or as one of its main purposes, the achievement of an abusive tax result by (a) avoiding the application of particular [tax] provisions, or (b) exploiting the application of particular provisions, or (c) exploiting inconsistencies in the application of provisions, or (d) exploiting perceived shortcomings in the provisions.


The draft GAAR includes safeguards intended to ensure that this ‘centre ground’ is protected:

  • an explicit protection for reasonable tax planning;
  • an explicit protection for arrangements entered into without any intent to reduce tax;
  • placing on HMRC the burden of proving that an arrangement is not reasonable tax planning;
  • an advisory panel to advise whether HMRC would be justified in seeking counteraction under the GAAR;
  • giving taxpayers and HMRC the right to refer to material or information which was publicly available when the tax planning arrangement was carried out, to help in determining whether an arrangement should be regarded as reasonable tax planning; and
  • requiring that potential application of the GAAR has to be authorised by senior officials within HMRC.

Existing anti-avoidance rules

‘In time, once confidence is established in the effectiveness of the anti-abuse rule, it should be possible to initiate a programme to reduce and simplify the existing body of detailed anti-avoidance rules,’ Aaronson said.

‘The Office of Tax Simplification would be the obvious agency to do this. This would lead to a significant improvement in the certainty of operation of the existing body of tax rules.’

The report noted that enacting an anti-abuse rule 'should make it possible, by eliminating the need for a battery of specific anti-avoidance sub-rules, to draft future tax rules more simply and clearly’.