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Clive Anderson asks: ‘To GAAR or not to GAAR?’

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Tax avoidance is legal but ‘is it fair, or even moral?’ asked Clive Anderson, the broadcaster and former barrister, as he introduced a panel of tax law specialists on the BBC’s Unreliable Evidence programme, broadcast on Radio 4 last week.

‘Companies owe their shareholders a fiduciary duty to make as much money as possible,’ he said, but protestors have pointed out that ‘all sorts of big names on the high street have all sorts of devices which allow them to keep more of their money and avoid sharing it with the rest of us’.

One way to ‘curb tax dodges’, he said, might be to introduce a general anti-avoidance rule (GAAR) allowing HMRC and the courts to look beyond the intricacies of financial arrangements to enforce ‘the spirit as well as the letter of the law’.

Three of Anderson’s panel on the programme – which is available on BBC iPlayer – are members of the group conducting a study into the merits of a GAAR at the UK government's request.

They are the tax barrister Graham Aaronson QC, the study group’s chairman; Judith Freedman, Professor of Taxation Law and Director of Legal Research at Oxford University's Centre for Business Taxation; and the retired Law Lord and revenue law expert, Lord Hoffmann.

Anderson’s fourth guest was Stephen Edge, Tax Partner at Slaughter and May. Both Freedman and Edge have contributed to Tax Journal many times and sit on its editorial board.

The fact that ‘the tax affairs of the larger people are more complicated’ makes it difficult for anyone to judge whether the government is collecting the right amount of tax, Lord Hoffmann suggested. 

Aaronson agreed that the question how much the government should be getting is an ‘extremely complicated matter to work out’. He claimed that what was being said ‘in the street’ by the protest group UK Uncut and others ‘does touch on paranoia’.

There may be a ‘grain of truth’ in it for some taxpayers, he said, but most multinationals are ‘very earnest’ in ‘trying to find out how much tax is really due and paying it’.

Freedman said it should be remembered that companies pay ‘a lot of taxes’ other than corporation tax. They may be collecting some of those taxes for other people but ‘in a way they are just collecting corporation tax for other people as well’. There was, she claimed, a good argument for ‘not having any corporation tax at all’. People would not be getting away with paying nothing – they would pay tax in other ways, she said.

'Silly schemes’
The speakers discussed the distinction between evasion and avoidance, and the Ramsay principle established by the courts in the 1980s.

The circumstances in Ramsay itself were extreme, Aaronson said, resulting in a ‘nonsensical’ tax outcome. Hoffman observed that the House of Lords said of the scheme, ‘come off it, look at the reality’. Edge said judges ‘will rightly strive’ to knock down an arrangement that produces an ‘apparently magical result’.

Aaronson said his group was a third of the way through its work on a possible GAAR. If a GAAR was considered to be worthwhile, he said, it would be worthwhile for two reasons.

First, it would ‘deter right at the start people who want to carry out silly tax exploitation schemes’.

Secondly, it would allow judges ‘just to look at the words of the legislation as they stand, and say whether or not the tax arrangement achieves the result the taxpayer wants according to the black letter of the legislation, read sensibly’.

If the answer was that the taxpayer should succeed in ‘a scheme which is really wholly unmeritorious’, then the GAAR could operate to block the scheme because the outcome ‘could not possibly be what parliament intended’.

‘Who is to make these decisions, as to what is wholly unmeritorious?’ Anderson asked. ‘That’s what we’re examining in very great detail,’ Aaronson replied.