An anti-tax abuse rule would make the tax code simpler – not more complex – the Prime Minister said yesterday.
In a speech on the economy, David Cameron said reforms including an overhaul of financial services regulation would mean "less but better" regulation. "We need strong frameworks that people can understand, not endless but ineffective box-ticking red tape," he said.
"That's what lies behind the new anti-tax abuse rule that the Chancellor is examining, which will make the tax code simpler, not more complex, but stop abuse at the same time."
Earlier this month, Cameron backed Nick Clegg’s call for action to ensure that companies pay their ‘fair share’ of tax.
Opponents of a general anti-avoidance rule have argued that it would increase uncertainty.
But Graham Aaronson’s study, commissioned by HM Treasury and now being considered by the Chancellor ahead of the Budget on 21 March, suggested that some of the present uncertainty arose from a temptation for judges to ‘stretch the interpretation [of tax law], so far as possible, to achieve a sensible result’.
In practice this uncertainty ‘spreads from the highly abusive cases into the centre ground of responsible tax planning’, Aaronson reported.
‘A GAAR specifically targeted at abusive schemes would help reduce the risk of stretched interpretation and the uncertainty which this entails.’
Baker Tilly noted this week that a general anti-abuse rule ‘has widespread support among politicians and the professions’.
George Bull, the firm’s Senior Tax Partner, suggested that a ‘regular flow’ of specific anti-avoidance measures might imply that a GAAR is still ‘a long way off’, or that ‘ever more arcane tax devices continue to cause significant loss of tax to the Exchequer’.
While the idea of replacing specific anti-avoidance measures with a GAAR was ‘widely welcomed’, he added, ‘the idea that a GAAR might co-exist with specific measures – where HMRC felt their case was weak and needed to resort to specific legislation – sounds like the worst of both worlds’.
Aaronson’s review concluded that a ‘broad spectrum general anti-avoidance rule’ would require an expensive system of advance clearances and would effectively allow HMRC to become ‘the arbiter of the limits of responsible tax planning’.
‘However, introducing a moderate rule which does not apply to responsible tax planning, and is instead targeted at abusive arrangements, would be beneficial for the UK tax system,’ he said.
Such a rule would it would ‘deter (and, where deterrence fails, counteract) contrived and artificial schemes which are widely regarded as an intolerable attack on the integrity of the UK’s tax regime’.
In time, he added, once confidence was 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’.
The government has ‘committed’ not to introduce a general anti-avoidance rule without further formal public consultation.
An anti-tax abuse rule would make the tax code simpler – not more complex – the Prime Minister said yesterday.
In a speech on the economy, David Cameron said reforms including an overhaul of financial services regulation would mean "less but better" regulation. "We need strong frameworks that people can understand, not endless but ineffective box-ticking red tape," he said.
"That's what lies behind the new anti-tax abuse rule that the Chancellor is examining, which will make the tax code simpler, not more complex, but stop abuse at the same time."
Earlier this month, Cameron backed Nick Clegg’s call for action to ensure that companies pay their ‘fair share’ of tax.
Opponents of a general anti-avoidance rule have argued that it would increase uncertainty.
But Graham Aaronson’s study, commissioned by HM Treasury and now being considered by the Chancellor ahead of the Budget on 21 March, suggested that some of the present uncertainty arose from a temptation for judges to ‘stretch the interpretation [of tax law], so far as possible, to achieve a sensible result’.
In practice this uncertainty ‘spreads from the highly abusive cases into the centre ground of responsible tax planning’, Aaronson reported.
‘A GAAR specifically targeted at abusive schemes would help reduce the risk of stretched interpretation and the uncertainty which this entails.’
Baker Tilly noted this week that a general anti-abuse rule ‘has widespread support among politicians and the professions’.
George Bull, the firm’s Senior Tax Partner, suggested that a ‘regular flow’ of specific anti-avoidance measures might imply that a GAAR is still ‘a long way off’, or that ‘ever more arcane tax devices continue to cause significant loss of tax to the Exchequer’.
While the idea of replacing specific anti-avoidance measures with a GAAR was ‘widely welcomed’, he added, ‘the idea that a GAAR might co-exist with specific measures – where HMRC felt their case was weak and needed to resort to specific legislation – sounds like the worst of both worlds’.
Aaronson’s review concluded that a ‘broad spectrum general anti-avoidance rule’ would require an expensive system of advance clearances and would effectively allow HMRC to become ‘the arbiter of the limits of responsible tax planning’.
‘However, introducing a moderate rule which does not apply to responsible tax planning, and is instead targeted at abusive arrangements, would be beneficial for the UK tax system,’ he said.
Such a rule would it would ‘deter (and, where deterrence fails, counteract) contrived and artificial schemes which are widely regarded as an intolerable attack on the integrity of the UK’s tax regime’.
In time, he added, once confidence was 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’.
The government has ‘committed’ not to introduce a general anti-avoidance rule without further formal public consultation.
