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GAAR advisory panel should exclude HMRC, says CIOT

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The advisory panel on the proposed general anti-abuse rule should be ‘wholly independent, with no representatives of HMRC’ according to the Chartered Institute of Taxation.

Patrick Stevens, President of the CIOT, said the proposed panel was a key feature of the operation of the GAAR and the government had identified its purpose as being to help taxpayers and HMRC identify the borderline of where the GAAR applies. ‘To achieve this we think it is necessary for it to be genuinely independent, drawing on those with current practical tax experience and with no HMRC representatives,’ he said today.

In a joint submission with the Association of Taxation Technicians, sent to HMRC last Thursday, the CIOT said there was much to consider about the panel’s constitution. ‘In particular, it needs to be set up in a way that ensures it draws on current practical experience and has no HMRC people involved.’

In its June 2012 consultation document HMRC said the government believed the panel should involve members ‘from HMRC and from outside HMRC’. One of the purposes of the panel was to develop a body of knowledge and guidance about the GAAR, it said. ‘HMRC has an important role to play in bringing its knowledge and experience of developing and applying tax law.’


The CIOT has also called on the government to defer the commencement of the GAAR for six months, to allow time for detailed guidance to be finalised.

HMRC guidance would need to be available at least in ‘final draft form’ when the GAAR came into effect, the CIOT argued: ‘It would not be acceptable to have the GAAR applicable from the proposed date of April 2013 with the law still unfinalised and with no guidance as to the GAAR’s operation. That would be a recipe for confusion and unfairness. We think the GAAR should commence only after Royal Assent to Finance Act 2013, ideally from 1 October; that will allow proper time to get the guidance in place.’


The CIOT noted that the topic had ‘aroused more wide-ranging comments and passion than almost any other of the last few years’. It had raised several concerns in response to the Aaronson report:

  • the UK’s tax code was ‘already overly complex’;
  • the uncertainty that ‘surrounds any GAAR’;
  • the risk that ‘saying anything against the GAAR, however constructive, will be portrayed as supporting avoidance’;
  • the risk that ‘too much discretionary power is given to HMRC’; and
  • ‘crucially, the fact that the proposed GAAR will not solve the high-profile problems identified in the tax system’.

Some immediate concerns had been addressed, the CIOT said last week, but two key concerns remained – the risk that too much discretionary power was being given to HMRC and managing ‘the uncertainty caused by the GAAR’. There were ‘a lot of judgments’ to be applied in the GAAR’s operation. ‘Most are subjective rather than objective and so add to the uncertainty that surrounds the operation of the GAAR. Anything that can be done to increase the objectivity of the various tests will be helpful,’ it said.

‘Main purpose’ test

The CIOT said it did not like the formulation of section 2(1) in HMRC’s draft:

‘Arrangements are tax arrangements if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.’

The tax body said: ‘Almost all commercial transactions will consider tax and so can be argued to have tax as one of the main purposes of a particular route. Consequently, [the provision] will draw too many transactions into needing to consider the GAAR and so lose certainty. We think this should instead be framed in terms of “sole or main purpose”; we cannot see that such wording should lose HMRC any serious measure of control over abusive arrangements.’

HMRC said in the consultation document that the proposed test recognised that ‘incidental steps taken to minimise a tax liability arising from an arrangement will not usually constitute a main purpose’.  Whether a purpose was a main purpose of an arrangement was one of fact.

‘No tax intent’

There was a need for a ‘no tax intent’ safeguard, the CIOT said, to give ‘an important signal’ about the use of the GAAR and allow taxpayers to self-assess more readily. HMRC’s draft GAAR omitted the safeguard contained in the Aaronson draft, submitted to HM Treasury last November.

Aaronson had proposed a series of ‘important safeguards’ to ensure that the centre ground of responsible tax planning was effectively protected. The second of those safeguards provided that:

‘An arrangement does not achieve an abusive tax result where the advantaged party shows, to the civil standard of proof, that it was neither designed nor carried out with the intention of achieving an advantageous tax result, and that no step or feature was included in or omitted from it with that intention.’

HMRC said in its consultation document that the provision would be unnecessary because arrangements entered into without tax intent would automatically be excluded from the GAAR.

In its initial response to the consultation, Aaronson’s study group said it was ‘content’ with the omission, ‘given the fact that such a safeguard would have very limited, if any, application in practice’. In its earlier report the group had suggested that while it was unlikely that arrangements without tax intent would in fact give rise to a tax advantage, it was ‘nonetheless possible’.

Latest proposal is ‘too broad’

The proposed GAAR could affect ‘straightforward tax management’, the CBI has warned.

CBI Director General John Cridland, said: ‘The CBI supports a GAAR which is proportionate and focused on highly abusive, artificial avoidance schemes which serve no commercial purpose. We are concerned that the latest proposal is too broad and could affect not just abusive transactions but also straightforward tax management, which is an essential business function. A broad spectrum anti-avoidance rule would compromise the certainty and stability that are vital to give businesses the confidence they need to make and maintain investments in the UK.’