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Tax experts welcome changes to general anti-abuse rule

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Changes to the proposed general anti-abuse rule (GAAR) have been welcomed as an indication that the government is ‘listening’ to professional bodies and tax advisers. But in a sign of growing concern among tax professionals about the direction of the tax avoidance debate, PwC tax partner Jon Richardson pointed out in a press release that the GAAR is ‘not intended to affect the way the profits of multinationals are allocated between the UK and other countries’.

Richardson added: ‘Any review of these transfer pricing rules would involve international tax authorities and other organisations such as the OECD.’

The CIOT and ATT said in a joint submission to HMRC in January: ‘We worry that the GAAR will not meet the aims of the politicians and will disappoint public opinion’. The GAAR would not solve the ‘high-profile problems identified in the tax system’.

‘Proper consultation’

The CIOT said changes to the draft GAAR published in June were ‘a product of proper consultation and sensible listening by HMRC’, and the publication of examples to illustrate how the GAAR applies to tax arrangements was ‘very constructive’. Chris Sanger, global head of tax policy at Ernst & Young, said today’s draft was ‘closer’ to the original draft – proposed by Graham Aaronson’s study group last November – than the June draft.

The GAAR will have effect in relation to any tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013, HMRC said. Draft clauses published today include details of the GAAR advisory panel’s role. HMRC guidance, in three parts, has been published for consultation.

Lisa Macpherson, national director of tax at PKF, said: ‘The draft legislation is significantly different in many instances to the Treasury’s original proposals and a welcome sign that the government is listening to professional bodies and advisers. For the GAAR to be effective, the new rules need to be workable and truly act as a deterrent to aggressive avoidance; the draft legislation suggests that the Treasury recognises this and has acted accordingly.’

She added that putting back the start date to mid-July next year would allow time for the advisory panel, HMRC and advisers to ensure that the rules are applied consistently and fairly.

‘It is also encouraging to see that the draft legislation includes additional protection for taxpayers,’ she said. ‘There was concern that the new rules could create uncertainty by potentially changing tax policy retrospectively, but today’s announcement should help alleviate some of the concerns. In particular, it will reassure many to see that the Treasury is likely to look more favourably on schemes that “accord with established practice, where HMRC had, at the time the arrangements were entered into, indicated its acceptance of that practice”.’

CIOT president Patrick Stevens said: ‘This is an example of good consultation and the result is a rule that is evolving sensibly. We and many other groups have been in very active dialogue with HMRC and it is good to see they have listened. A number of changes – including to the “double reasonableness” test – reflect points we have made and although not all of our concerns have been met, we are getting towards a workable rule that will be effective against abusive schemes whilst not getting in the way of general business planning.’

However, Grant Thornton expressed disappointment that the views of the GAAR advisory panel will not be binding on HMRC. ‘The extent to which taxpayers have comfort that the panel's view will be respected remains unclear,’ said tax partner Martin Lambert.