International Tax - The World According To GAAR: Part 2

Author:Mr James Quarmby
Profession:Thomas Eggar

The nice people at HMRC are certainly taking their vitamins, judging by the number of consultation documents that have landed on my desk in the last two weeks. If you don't fancy the "Ensuring the fair Taxation of Residential Property Transactions" or "The Taxation of Controlling Persons" or indeed the fascinating "Withdrawing a Notice to File a Self-assessment Return" then how about the latest on the General Anti-Abuse Rule (GAAR)?

I have already opined at some length on my feelings about the GAAR and if you haven't read The World According to GAAR Part 1 (shame on you) then please view here. By the way, this is a long edition, so you may need to take some vitamins too before jumping in.

So what's the damage?

Essentially, its full steam ahead with the GAAR, but the consultation document emphasises that it will only be used to target "artificial and abusive arrangements". Indeed, there has been a subtle change of name with the substitution of the word 'avoidance' with 'abuse' in the title.

Many of the examples given in the condoc of the kind of schemes against which the GAAR will be used are actually quite comforting as they involve artificial arrangements to generate capital losses or other tax credits where there is no real economic substance to the transaction. This is all well and good as most people would accept, for instance, that the highly artificial loss generating schemes that have been flying around really aren't cricket. Whilst I have some reservations about the proposed drafting of the rule (of which more below) I am generally more comforted than worried. Of course, it goes without saying that I am still opposed to the idea of a GAAR as I believe that if HMRC wishes to stop egregious tax planning then it can use Targeted Anti-Avoidance Rules (TAARs) of the kind it has been churning out for the last few years.

Scope of the GAAR

The GAAR will apply to income tax, corporation tax, CGT and petroleum revenue tax as originally planned but has now been widened to include inheritance tax, SDLT and the "enveloped property annual charge". The condoc makes it clear that the GAAR will act in addition to any TAARs and they anticipate that the government will continue to introduce TAARs until such time as they believe the GAAR is really working well (i.e. never). This is what I find bewildering – if you have effective TAARs then you simply don't need a GAAR, unless you admit that your drafting skills are so rubbish that the TAARs are ineffective. Likewise, if you have a GAAR, what exactly is the...

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