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HMRC Publishes GAAR Guidance

By Amanda Banks,, London

17 April 2013

HM Revenue and Customs has published guidance which courts will be required to take into account when considering cases brought in relation to the UK's new General Anti-Avoidance Rule.

The guidance, which is written "in layperson's language," summarizes what the GAAR is designed to achieve and how HMRC intends to achieve it. Four sections have been approved by the interim GAAR Advisory Panel, and as such must be considered as an aid to interpretation and application by courts and tax tribunals in accordance with GAAR legislation included in the Finance Bill 2013.

The document explicitly rejects an approach seen in past court judgments, in which tax avoidance within the letter of the law was allowed to stand, and cautions that: "Taxation is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability." Instead, there is now a statutory limit that is reached "when the arrangements put in place by the taxpayer... go beyond anything which could reasonably be regarded as a reasonable course of action."

This "double reasonableness" test is described by the guidance document as a "safeguard" to ensure the taxpayer is given the benefit of any reasonable doubt. The burden of proof remains with HMRC, and the guidance also gives an assurance that adjustments will be "just and reasonable" and will not involve any double taxation. HMRC officials are also required to get consent from an independent advisory panel before applying the GAAR. However, penalties may apply to self-assessment in cases where it "should have been obvious" that an arrangement was abusive.

The GAAR applies to income tax, capital gains tax, inheritance tax, corporation tax (as well as charges treated the same way as corporation tax), petrol duty, stamp duty land tax, and the annual tax on enveloped dwellings. Separate legislation will apply the GAAR to National Insurance Contributions.

The interim GAAR Advisory Panel completed its work on April 15, and is now replaced by a permanent panel chaired by Patrick Mears, formerly a partner and Head of Tax at the law firm Allen & Overy.

TAGS: court | inheritance tax | tax | investment | tax avoidance | law | corporation tax | United Kingdom | legislation | stamp duty | HM Revenue and Customs (HMRC) | penalties | HM Revenue and Customs (HMRC) | individual income tax

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