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Autumn statement: Tax experts urge caution on general anti-abuse rule

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The government has confirmed that draft legislation and guidance on a general anti-abuse rule (GAAR) will be published later this month.

Alex Henderson, tax partner at PwC, said it was clear that the GAAR ‘will be a narrowly targeted rule focused on extreme tax planning’. It was important, he said, that ‘the practical details don't affect the mainstream of compliant tax payers, whether businesses or individuals’.

Shiv Mahalingham, managing director at Alvarez & Marsal Taxand UK, said the GAAR offered ‘no new solution to moral arguments around the corporate tax contribution’. Existing rules were designed to police aggressive structures and ‘did so effectively on a case by case basis’ he said.

‘However, a GAAR that replaces the existing rules may partially remove the mindboggling complexity of UK tax legislation which has developed as successive governments have attempted to tackle the avoidance problem’.

Michael Wistow, head of tax at the law firm Berwin Leighton Paisner, said: ‘If introduced with proper checks and balances, the GAAR could prove to be the most effective tool in the government’s armoury in tackling what it regards as abusive tax avoidance. However, sufficient checks and balances are not yet in place and a GAAR also introduces risks to business certainty.’

He added: ‘Ironically, many of the schemes that a GAAR was intended to tackle did not work in any event. It should not be forgotten that the courts already have the tools they need without the uncertainties of a GAAR. It is disappointing that at the moment at which the chancellor confirmed the introduction of a GAAR he did not take the opportunity to begin the process of simplification and instead added a handful of further anti-avoidance measures.’

Chris Jones, Tolley director of tax markets, said the chancellor’s ‘more robust’ approach to multinationals, and the increased funding announced earlier this week to fund HMRC’s anti-avoidance work, were responses to political opinion as well as economic reality.

‘To ensure these initiatives work, it is important that they are seen as just and the rule of law is adhered to,’ Jones said.

‘To reduce the creation of complex aggressive tax schemes, the government should not lose sight of the need to simplify the tax system, as loopholes in the law can lead to leakage. This means that the administration of the tax system should be done efficiently and fairly.

‘The majority of businesses, and tax advisers, comply with the law and wish to comply with the law. Complex tax legislation makes that harder, as taxpayers’ obligations may be unclear. Under pressure to deliver more revenue, it is crucial that HMRC remembers that the taxpayer is innocent until proven guilty.’